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The Causes and Effects of Human Capital Flight

Permanent Link: http://ufdc.ufl.edu/UFE0042217/00001

Material Information

Title: The Causes and Effects of Human Capital Flight The Case of Venezuela and Florida
Physical Description: 1 online resource (132 p.)
Language: english
Creator: Harmel, David
Publisher: University of Florida
Place of Publication: Gainesville, Fla.
Publication Date: 2010

Subjects

Subjects / Keywords: accion, adquisitivo, alimentacion, alvarez, america, andean, andino, andres, arias, baduel, betancourt, bolivar, bolivares, bolivariano, bonds, bonos, brain, bribe, business, cabello, cadena, cadivi, caldera, cambio, campins, cap, capital, caracas, caracazo, cardenas, carlos, castro, cerebros, chavez, chavismo, chavista, cisneros, coefficient, college, comandante, communism, community, competition, competitiveness, comunidad, comunismo, controls, copei, corrupcion, corruption, coup, crisis, cuba, currency, de, debt, delincuencia, democratica, depreciacion, depreciation, desarrollo, desigualdad, deuda, devaluacion, devaluation, development, diosdado, distribucion, distribution, doral, drain, economico, economics, educacion, education, elecciones, elections, emigracion, emigration, empresarial, empresario, enterprise, entrepreneur, entrepreneurial, environment, escasez, escualido, estado, estatal, estudiantes, exchange, exiles, expresion, expression, expropiacion, expropiar, expropriate, expropriation, farc, fidel, fijo, fixed, florida, food, frais, francisco, freedom, fuga, gdp, gini, globovision, golden, golpe, guerrilla, guillermo, gustavo, herrera, homicide, homicidio, huelga, hugo, human, hurto, immigration, income, inequality, inestabilidad, inflacion, inflation, inflationary, injustice, injusticia, inmigracion, instability, kidnapping, latin, latinoamerica, law, leoni, leopoldo, ley, leyes, libertad, licenciado, liquidity, list, lista, lopez, lusinchi, manuel, maracaibo, mbr200, medium, mercal, miami, microempresa, migracion, migration, misiones, missions, murder, mvr, nacionalizacion, nationalization, negocios, of, oil, opec, opep, oposicion, opposition, organic, organico, orlando, oswaldo, outflow, owned, paratrooper, partido, paz, pdvsa, perez, petrodiplomacy, petroleo, petroleum, pib, pobreza, poder, political, poor, poverty, power, precios, price, produccion, production, professionals, psuv, punto, purchasing, pymes, racionamiento, rate, ration, rationing, raul, rctv, recession, regulacion, regulation, retraso, rights, romulo, rosales, secuestro, sending, shortage, small, sme, soborno, socialism, socialismo, socialista, south, speech, stability, state, stolen, strike, students, sudamerica, sueldo, talent, tampa, tariffs, tasa, tascon, transnational, unfree, universidad, universidades, university, uson, vacuno, venevision, venezolana, venezolano, venezuela, venezuelan, violence, violencia, weston, zuloaga
Latin American Studies -- Dissertations, Academic -- UF
Genre: Latin American Studies thesis, M.A.
bibliography   ( marcgt )
theses   ( marcgt )
government publication (state, provincial, terriorial, dependent)   ( marcgt )
born-digital   ( sobekcm )
Electronic Thesis or Dissertation

Notes

Abstract: This study examines the flow of entrepreneurial human capital from Venezuela to the state of Florida since the election of Hugo Rafael Chavez Frias to the presidency in December 1998. In order to place the large-scale migration of the business community in proper historical context, the study analyzes the long-term trends that affected Venezuelan economic performance and competitiveness during the pre-Chavez Punto Fijo period, which began with the establishment of a power-sharing democracy by the Accion Democratica and COPEI political parties in 1958 and culminated with Chavez's triumph in the December 1998 elections. A case study of Venezuelan business professionals residing in Florida and Venezuela was employed to gain an in-depth perspective on the deterioration of the business environment and Venezuela?s international competitiveness since 1998. The interviews present the principal reasons for emigrating, the challenges faced by skilled immigrants upon arrival to Florida, and the consequences that Venezuela is facing as private enterprises close and entrepreneurs flee the country due to the fear of violent crime and political instability. Though Venezuelan business professionals in the United States are hopeful that they will succeed in their new professions, they recognize that continued human capital flight will leave Venezuela devoid of talent in the future.
General Note: In the series University of Florida Digital Collections.
General Note: Includes vita.
Bibliography: Includes bibliographical references.
Source of Description: Description based on online resource; title from PDF title page.
Source of Description: This bibliographic record is available under the Creative Commons CC0 public domain dedication. The University of Florida Libraries, as creator of this bibliographic record, has waived all rights to it worldwide under copyright law, including all related and neighboring rights, to the extent allowed by law.
Statement of Responsibility: by David Harmel.
Thesis: Thesis (M.A.)--University of Florida, 2010.
Local: Adviser: McCoy, Terry L.

Record Information

Source Institution: UFRGP
Rights Management: Applicable rights reserved.
Classification: lcc - LD1780 2010
System ID: UFE0042217:00001

Permanent Link: http://ufdc.ufl.edu/UFE0042217/00001

Material Information

Title: The Causes and Effects of Human Capital Flight The Case of Venezuela and Florida
Physical Description: 1 online resource (132 p.)
Language: english
Creator: Harmel, David
Publisher: University of Florida
Place of Publication: Gainesville, Fla.
Publication Date: 2010

Subjects

Subjects / Keywords: accion, adquisitivo, alimentacion, alvarez, america, andean, andino, andres, arias, baduel, betancourt, bolivar, bolivares, bolivariano, bonds, bonos, brain, bribe, business, cabello, cadena, cadivi, caldera, cambio, campins, cap, capital, caracas, caracazo, cardenas, carlos, castro, cerebros, chavez, chavismo, chavista, cisneros, coefficient, college, comandante, communism, community, competition, competitiveness, comunidad, comunismo, controls, copei, corrupcion, corruption, coup, crisis, cuba, currency, de, debt, delincuencia, democratica, depreciacion, depreciation, desarrollo, desigualdad, deuda, devaluacion, devaluation, development, diosdado, distribucion, distribution, doral, drain, economico, economics, educacion, education, elecciones, elections, emigracion, emigration, empresarial, empresario, enterprise, entrepreneur, entrepreneurial, environment, escasez, escualido, estado, estatal, estudiantes, exchange, exiles, expresion, expression, expropiacion, expropiar, expropriate, expropriation, farc, fidel, fijo, fixed, florida, food, frais, francisco, freedom, fuga, gdp, gini, globovision, golden, golpe, guerrilla, guillermo, gustavo, herrera, homicide, homicidio, huelga, hugo, human, hurto, immigration, income, inequality, inestabilidad, inflacion, inflation, inflationary, injustice, injusticia, inmigracion, instability, kidnapping, latin, latinoamerica, law, leoni, leopoldo, ley, leyes, libertad, licenciado, liquidity, list, lista, lopez, lusinchi, manuel, maracaibo, mbr200, medium, mercal, miami, microempresa, migracion, migration, misiones, missions, murder, mvr, nacionalizacion, nationalization, negocios, of, oil, opec, opep, oposicion, opposition, organic, organico, orlando, oswaldo, outflow, owned, paratrooper, partido, paz, pdvsa, perez, petrodiplomacy, petroleo, petroleum, pib, pobreza, poder, political, poor, poverty, power, precios, price, produccion, production, professionals, psuv, punto, purchasing, pymes, racionamiento, rate, ration, rationing, raul, rctv, recession, regulacion, regulation, retraso, rights, romulo, rosales, secuestro, sending, shortage, small, sme, soborno, socialism, socialismo, socialista, south, speech, stability, state, stolen, strike, students, sudamerica, sueldo, talent, tampa, tariffs, tasa, tascon, transnational, unfree, universidad, universidades, university, uson, vacuno, venevision, venezolana, venezolano, venezuela, venezuelan, violence, violencia, weston, zuloaga
Latin American Studies -- Dissertations, Academic -- UF
Genre: Latin American Studies thesis, M.A.
bibliography   ( marcgt )
theses   ( marcgt )
government publication (state, provincial, terriorial, dependent)   ( marcgt )
born-digital   ( sobekcm )
Electronic Thesis or Dissertation

Notes

Abstract: This study examines the flow of entrepreneurial human capital from Venezuela to the state of Florida since the election of Hugo Rafael Chavez Frias to the presidency in December 1998. In order to place the large-scale migration of the business community in proper historical context, the study analyzes the long-term trends that affected Venezuelan economic performance and competitiveness during the pre-Chavez Punto Fijo period, which began with the establishment of a power-sharing democracy by the Accion Democratica and COPEI political parties in 1958 and culminated with Chavez's triumph in the December 1998 elections. A case study of Venezuelan business professionals residing in Florida and Venezuela was employed to gain an in-depth perspective on the deterioration of the business environment and Venezuela?s international competitiveness since 1998. The interviews present the principal reasons for emigrating, the challenges faced by skilled immigrants upon arrival to Florida, and the consequences that Venezuela is facing as private enterprises close and entrepreneurs flee the country due to the fear of violent crime and political instability. Though Venezuelan business professionals in the United States are hopeful that they will succeed in their new professions, they recognize that continued human capital flight will leave Venezuela devoid of talent in the future.
General Note: In the series University of Florida Digital Collections.
General Note: Includes vita.
Bibliography: Includes bibliographical references.
Source of Description: Description based on online resource; title from PDF title page.
Source of Description: This bibliographic record is available under the Creative Commons CC0 public domain dedication. The University of Florida Libraries, as creator of this bibliographic record, has waived all rights to it worldwide under copyright law, including all related and neighboring rights, to the extent allowed by law.
Statement of Responsibility: by David Harmel.
Thesis: Thesis (M.A.)--University of Florida, 2010.
Local: Adviser: McCoy, Terry L.

Record Information

Source Institution: UFRGP
Rights Management: Applicable rights reserved.
Classification: lcc - LD1780 2010
System ID: UFE0042217:00001


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THE CAUSES AND EFFECTS OF HUMAN CAPITAL FLIGHT:
THE CASE OF VENEZUELA AND FLORIDA





















By

DAVID MICHAEL HARMEL


A THESIS PRESENTED TO THE GRADUATE SCHOOL
OF THE UNIVERSITY OF FLORIDA IN PARTIAL FULFILLMENT
OF THE REQUIREMENTS FOR THE DEGREE OF
MASTER OF ARTS

UNIVERSITY OF FLORIDA

2010


































2010 David Michael Harmel
































To my mom, who instilled in me the values of honesty and perseverance and encouraged me to
broaden my horizons; and to Liliana, who has inspired and supported me every step of the way.









ACKNOWLEDGMENTS

Many thanks are due to my supervisory committee. I am especially thankful for the support

of my committee chairman, Dr. Terry McCoy, who spent countless hours brainstorming,

discussing ideas, and offering insight that enabled me to improve the quality of my work. I am

also grateful for the wisdom and encouragement imparted by Dr. Efrain Barradas and Dr. Andy

Naranjo. Lastly, I thank the interviewees for their willingness to discuss the issues that have

polarized Venezuela over the course of the last eleven years.









TABLE OF CONTENTS

page

A CK N O W LED G M EN T S ................................................................. ........... ............. .....

L IS T O F T A B L E S ............. ..... ............ ............................................. ............... 8

LIST OF FIGURES .................................. .. ..... ..... ................. .9

LIST OF ABBREVIATION S ............................. ................... ........................ 10

A B S T R A C T ................................ ............................................................ 12

CHAPTER

1 INTRODUCTION .................. .................. ................................ ............ 13

O v erv iew ................... ............................................................ ................ 13
Problem Statem ent ............................................................... .... ..... ........ 13
R review of the Literature .................. .................. .................. ......... .. ............ 14
Causes of a Human Capital Drain ................... ................................. 14
Consequences of a Human Capital Drain................. ...... ...............18
The Entrepreneurial Effect of the Human Capital Drain...............................................23
S ig n ifican ce .................................................................................2 5
O rg an iz atio n .............................................................................. 2 5

2 CHAVISMO AND ITS ANTECEDENTS....................................................................... 27

Forty Y ears of Punto Fijo ...................... ........................................................... 28
The Presidency of R6mulo Betancourt (1959-1964).......................................................29
The Presidencies of Raul Leoni (1964-1969) and Rafael Caldera (1969-1974)............30
The First Term of Carlos Andres Perez (1974-1979) ......................................................31
The Presidencies of Luis Herrera Campins (1979-1984) and Jaime Lusinchi
(19 84 -19 89) .......................... ..... ... .......................................... 34
The Second Term of Carlos Andres Perez (1989-1993) ..............................................37
The Second Term of Rafael Caldera (1994-1999) ..................................... ...............41
The 1998 Election............................... .. ..... .... .. ....... ..... .... 43
T he C havez E ra .................................................... ..............................44
Radicalization of the Chavez Regim e ................................... .................. ...... ..........47
T he E vents of A pril 2002 ............................................................................................ 48
A accusations of U .S. Involvem ent........................................................................ .. .... 50
B ack at H om e in M iraflores .................................................. .............................. 51

3 THE BUSINESS ENVIRONMENT UNDER CHAVEZ............................................... 54

Overview ................................ ................. .. .......... ....... 54
C rim e and V violence ................................................................55









Steadily Increasing Crim e Rates since 1999 ....................................... ............... 56
Lack of Coexistence in a Polarized Society ........................................ .....................56
Effect on the Business Environm ent ........................................ .......... ............... 58
Concentration of Power ....................... ...... .. ..... .................60
Judicial Involvement in the 2002 and 2004 Crises........................................................60
The Implem entation of the Organic Law .................................... .......... .................. 61
Political Discrimination as Government Policy ................................... .................62
Silencing Critics .......................................64
Effect on the Business Environm ent ........................................ .......................... 67
E expropriation s.....................................................68
N ationalization of Private Firm s ........................................... ................................... 68
Confiscation of Private Property ......................................................... ............... 70
Effect on the Business Environm ent ........................................ .......... ............... 71
E conom ic P policy .............................................................................................................. 7 1
Reimplem entation of Capital Controls...................................................................... 73
Reintroduction of Tariffs and Import Quotas..... ................ ..... ............75
Choosing to Direct Government Spending Abroad.............................. ...............76
International C om petitiveness ........................................................................ .................. 77
Sum m ary ............................................ ................................. .........................79

4 EMIGRATION OF THE VENEZUELAN BUSINESS COMMUNITY ...........................85

V en ezu elan s in F lo rid a ................................................................................ .................... 8 7
W estonzuela and D oralzuela ........................................................................... 90
R return of the G olden Exiles? ............................................... ............................... 92
C ase Study .......................................... ................. 96
Evaluation of the Pre-Chavez Business Environment................. ............................98
Deterioration of the Business Environment ...........................................................99
T he D decision to E m igrate .............................................................................. .... ........10 1
Effects of Em igration on Venezuela ...................................................... ... .......... 104
E experiences in F lorida ......................................................................... ........ ........... 105
Predictions for the Future of V enezuela.............................................. .................. 107
S u m m ary ................... ...................1...................0.........8

5 CONCLUSION................ ..... ... .. .... .... ..................114

Research Findings .................................. ................................ ......... 114
Pre-Chavez Business Environm ent .................................... .......................... .. ......... 114
Em migration from V enezuela .................................................................................... 115
Significance .................. ........... ........................... ............................. 116
Lim stations and Topics for Future Research ................................. ............. .................. 117

APPENDIX

A IN TE R V IE W G U ID E ..................................................................................................... 119

B TIM ELIN E O F EV EN T S ............................................................................. ...............120



6









L IST O F R E FE R E N C E S ........... .......... ....................................................................... 124

B IO G R A PH IC A L SK E T C H ............................... ................. ........................... ....................... 132









LIST OF TABLES


Table page

4-1 Inequality and the propensity of the highly skilled to emigrate .........................109

4-2 C ase stu dy p participants ............................ ................. ................................................. 110









LIST OF FIGURES


Figure page

3-1 Weekly spot price of Venezuelan Tia Juana Light oil, 1998-2009...............................81

3-2 Homicides per 100,000 residents, 1987-2008......................................... ............... 82

3-3 Bolivars per dollar, 1998-2010 (at official rate) ......... ...................... ................... 82

3-4 Economic freedom in Venezuela, 1995-2010................................. .............83

3-5 Venezuela's economic freedom compared with the world, in percentiles ......................83

3-6 Foreign direct investment in Venezuela, 1997-2008 (in US$ millions)..........................84

4-1 Location of Venezuelans in the United States by state, 2009............. .................111

4-2 Venezuelans in Florida by county, 2009................................................112

4-3 Venezuelans as a percentage of the total Latino population, selected metro areas .........113











AD

AN

Bs

BsF

CADIVI

CANTV

CNE

CONAPRI

COPEI

CTV

CVP

DED

ECLAC

ELN

FARC-EP

FONDEMI

FUS

GDP

IESA

IMF

ISI

LOTSJ

LTDA

MAS


LIST OF ABBREVIATIONS

Democratic Action

National Assembly

bolivars

strong bolivars

Commission for Currency Administration

National Telephone Company of Venezuela

National Electoral Council

National Council for Investment Promotion

Political Electoral Independent Organization Committee

Workers' Confederation of Venezuela

Venezuelan Petroleum Corporation

deferred enforced departure

Economic Commission for Latin America and the Caribbean

National Liberation Army (Colombia)

Revolutionary Armed Forces of Colombia People's Army

Fund for Microfinance Development

United Social Fund

gross domestic product

Institute of Higher Administration Studies

International Monetary Fund

import-substitution industrialization

Organic Law of the Supreme Tribunal of Justice

Law of Land and Agrarian Development

Movement toward Socialism









MBR-200

MEP

MVR

NED

OECD

OPEC

PCV

PDVSA

PODEMOS

PSUV

RCTV

SELA

SIDOR

TSJ

URD

VIO

VTV


Revolutionary Bolivarian Movement-200

People's Electoral Movement

Fifth Republic Movement

National Endowment for Democracy (United States)

Organisation for Economic Co-operation and Development

Organization of the Petroleum Exporting Countries

Communist Party of Venezuela

Petroleos de Venezuela, S.A.

For Social Democracy (acronym also literally spells "we can")

United Socialist Party of Venezuela

Radio Caracas Television

Latin American Economic System

Orinoco Iron & Steel Corporation

Supreme Tribunal of Justice

Democratic Republican Union

Venezuela Information Office

Venezuelan Television Corporation









Abstract of Thesis Presented to the Graduate School
of the University of Florida in Partial Fulfillment of the
Requirements for the Degree of Master of Arts

THE CAUSES AND EFFECTS OF HUMAN CAPITAL FLIGHT:
THE CASE OF VENEZUELA AND FLORIDA

By

David Michael Harmel

August 2010

Chair: Terry L. McCoy
Major: Latin American Studies

This study examines the flow of entrepreneurial human capital from Venezuela to the state

of Florida since the election of Hugo Rafael Chavez Frias to the presidency in December 1998.

In order to place the large-scale migration of the business community in proper historical

context, the study analyzes the long-term trends that affected Venezuelan economic performance

and competitiveness during the pre-Chivez Punto Fijo period, which began with the

establishment of a power-sharing democracy by the Acci6n Democritica and COPEI political

parties in 1958 and culminated with Chavez's triumph in the December 1998 elections.

A case study of Venezuelan business professionals residing in Florida and Venezuela was

employed to gain an in-depth perspective on the deterioration of the business environment and

Venezuela's international competitiveness since 1998. The interviews present the principal

reasons for emigrating, the challenges faced by skilled immigrants upon arrival to Florida, and

the consequences that Venezuela is facing as private enterprises close and entrepreneurs flee the

country due to the fear of violent crime and political instability. Though Venezuelan business

professionals in the United States are hopeful that they will succeed in their new professions,

they recognize that continued human capital flight will leave Venezuela devoid of talent in the

future.









CHAPTER 1
INTRODUCTION

Overview

In 1998, Hugo Rafael Chavez Frias was elected president of Venezuela as the populace

sought to bring an end to four decades of a power-sharing agreement between the country's three

main political parties. Promising to end corruption and solve the country's economic problems,

Chavez set out on an ambitious course, receiving the approval of the voters to revamp the

constitution and the legislature. More than a decade later, Chavez is still the head of state, though

the Bolivarian Republic of Venezuela's economic well-being is far from secure. As Chavez and

his supporters have increased their control, a stream of educated professionals and capital has

fled the country in increasing numbers, thus calling into question the future of entrepreneurship

in Venezuela. This study seeks to determine the causes and impact of these flows on Venezuela

and Florida, the state that receives almost 60% of all Venezuelan migrants to the United States

(U.S. Census Bureau, 2009).

Problem Statement

There is an ongoing decades-long debate about the net effect of human capital flows from

developing to developed nations. The most well-known view, of the so-called "brain drain,"

postulates that there is a negative net effect on the sending country, as a nation's most intelligent

and enterprising citizens are among the first to emigrate. Some scholars have theorized that there

are actually related factors that benefit the sending country at levels above and beyond the

detrimental results of the migration of educated professionals. I hypothesize that the deteriorating

condition of the Venezuelan business environment and the rise of personal insecurity and violent

crime have caused a continuing outflow of human capital and entrepreneurial talent, a "business

drain," that will have harmful consequences for the well-being of the Venezuelan economy in the









long-run, though the United States, specifically the state of Florida, will benefit from the influx

of well-educated members of the business community.

Review of the Literature

Causes of a Human Capital Drain

Altimirano Rua (2006: 19) defines transnational migration as a "thermometer that

measures the distinct levels of political and economic stability and instability of countries." By

citing the examples of Peru and Ecuador between 2000 and 2003, when a combined 1.1 million

(600,000 Ecuadorians and 500,000 Peruvians) people moved beyond the borders of their

respective countries, Altimirano Rua (2006) argues that a strong correlation between a lack of

stability, whether economic or political, and emigration is indeed evident.

It is not surprising that political instability can affect the flow of human capital.

Castahos-Lomnitz et al. (2004) note not only the well-known example of Jewish scientists such

as Albert Einstein, who fled his country of birth shortly before the onset of World War II, but

also the exodus of Spanish Republican intellectuals to Mexico during the Spanish Civil War and

the flight of many well-educated citizens of the Southern Cone during that region's domination

by brutal military regimes during the Condor years of the 1970s. During that time, the

dictatorships made it a priority to "target universities and other academic centers for ideological

cleansing and to abate sources of internal opposition and criticism," leading Andres Solimano

(2002: 10) of the Economic Commission for Latin America and the Caribbean (ECLAC) to

suggest that there could be a "direct correlation between the emigration of scientists and

intellectuals and the existence of authoritarian regimes that suppress civil liberties and curtail

academic freedom."

Castahos-Lomnitz (2004) describes the popular view of emigrating Mexican elites and

middle-class professionals as engaging in something akin to desertion. Though the term "brain









drain" orfuga de cerebros has often been associated with scientists and professors, the term, as

defined by Dimitris Chorafas in 1970, means the "emigration of professionals and high-level

specialists who are searching for a more favorable environment to advance their career and

professional development, for whom salary incentives are not a decisive factor"

(Castafios-Lomnitz, Rodriguez-Sala & Herrera Marquez, 2004: 25). In this way, the brain drain

patterns observed do not only apply to highly technical fields; there is a drain of business talent

as well.

The prevailing notion that the flow of human capital can be predicted solely with national

income data is revealed to be false; previous studies have revealed, for example, that in the 1970s

British university graduates permanently emigrated at a rate 50% higher than that of their

Argentine counterparts despite the higher standards of living that could be found at that time

throughout Western Europe (Castafios-Lomnitz, Rodriguez-Sala & Herrera Marquez, 2004: 22).

Nevertheless, it is still theorized that salary differentials in professional occupations between the

origin and destination countries play a major role. However, Portes (2008: 8) feels that the theory

of salary differentials "neglects the social context in which such individual calculations are

made." Without these necessary factors, wage factors alone cannot predict the flow of skilled

labor (Portes, 2008: 8).

Alejandro Portes describes the study of international migration as a field where there is a

continuous "controversy between perspectives that see the outflow not only as a system of

underdevelopment but also a cause of its perpetuation, and those that regard migration both as a

short-term safety valve and a potential long-term instrument for growth" (Portes, 2008: 7).

Although governments may temporarily slow down the impetus of migration through short-term









policy solutions, migrants who bring their families speed up the population outflow, making a

return to the home country less likely (Portes, 2008: 7).

Portes (2008: 8) criticizes those who group low-skilled practitioners of manual labor with

what he calls "highly-trained professionals and technical personnel." Instead, he prefers to

analyze the distinct groups separately. The high-profile migration of unskilled laborers from

Mexico to the United States, for example, provides an example that somewhat supports the

traditional, neoclassical economics-based view of migration. That is, that wage differentials

provide the impetus for movements (Portes, 2008: 8). Nevertheless, social networks are what

support migration patterns and the reliability of remittance flows in the long-term. These

networks "link not only migrants with their kin and communities in sending countries; they also

link employers in receiving areas to migrants" (Portes, 2008: 9).

In 2000, it was estimated that 5% of skilled individuals worldwide would migrate,

compared with rates of 5.1% in South America, 16.9% in Central America, 0.9% in North

America, and 42.8% in the Caribbean (Docquier & Marfouk, 2006: 170). The authors note an

inverse relationship between population and skilled emigration rate; educated immigrants leave

smaller countries at a rate seven times than large countries (Docquier & Marfouk, 2006:

169,172), though in absolute terms those countries most affected by human capital flight are the

world's highly populated countries. Perhaps most interestingly, immigrants in high-income

Organisation for Economic Co-operation and Development (OECD) nations such as Australia,

Canada, Ireland, the United Kingdom, Japan, Spain, and Italy have higher levels of educational

attainment than the native-born, though this may in part be due to the implementation of

point-based immigration standards (Docquier & Marfouk, 2006).









At least two works on the Venezuelan brain drain have been published since the 1990s,

which certainly has been a turbulent period for the country. The first, published in 1991 by

IESA, Venezuela's leading business school, is a compilation of studies that were presented at a

symposium dealing with the issue in 1988. Ramon Pifiango (1991: 12) describes this migration

as the "result of a frustration, of not perceiving opportunities for the realization of professional

aspirations," where the flow of talent is simply a career choice. In this interpretation one who

emigrates "does so to a country in which he already some contact," whether it be via family,

friends, or a professional connection (Pifiango, 1991: 12).

Pifiango mentions the strong role that the lack of a developed internal labor market has

played in influencing emigration, saying that factors such as particularismo (the absence of

anti-discrimination provisions in private enterprise), the relation between inflation and wages,

and the patrimonial nature of private enterprise in Venezuela have combined to "block the

emergence of a meritocracy" in the country (Pifiango, 1991: 19). This situation is said to be

mirrored in the public sector, further pushing otherwise qualified workers to leave for better

opportunities.

The other work, written by Ivan de la Vega, primarily focuses on the emigration of

scientists and other professionals in high-tech fields. De la Vega (2005) differentiates between

short-term worker mobility and migration, which is seen as more permanent. During most of the

second half of the 20th century, when Venezuelans "were the envy of Latin America," there was

little reason to flee the Andean Caribbean nation (Margolis, 2009). Jobs and oil were plentiful, in

sharp contrast to neighboring Colombia, where unrest and instability caused hundreds of

thousands of Colombians to flee across the border to Venezuela in search of a better life in the

1970s alone. It is estimated that even today there are more than a million Colombians residing in









Venezuela, a figure that is equal to the number of Colombians in the United States (Altimirano

Rua, 2006).

The recent trend in emigration away from Venezuela is seen as an aberration, since the

23-year large-scale wave of immigration that began when democracy was re-inaugurated in 1959

and lasted until the onset of the debt crisis in 1982 brought hundreds of thousands of

opportunity-seeking immigrants into Venezuela from Europe, Asia, and other parts of Latin

America (de la Vega, 2005). Pifiango (1991) and de la Vega (2005) both credit the problems

brought on in 1982-1983, namely the devaluation of the bolivar, the external debt, rampant

inflation, the rapid fall in the price of oil, and the resultant recession as the factors that

simultaneously ended the inflow of human capital and brought about the first human capital

outflow from Venezuela.

Outflows of human capital may thus be caused by several reasons. Political instability

and violence, economic volatility, low perceived future economic prospects, the lack of a

meritocratic system of advancement, better educational opportunities abroad, and wage

differentials in similar professions can all contribute to an individual's decision to leave his home

country.

Consequences of a Human Capital Drain

The danger of large-scale migration flows is that what Solimano (2002: 16) terms the

"milieu for knowledge generation" will disappear, causing the sending country to fall into a

"phase of stagnation," as the knowledge and know-how of entire sectors of the population are

irreplaceable in the short term. Still, those that believe that this migration is "a permanent and

irreversible outflow of human capital" are slowly being outnumbered by scholars who believe

that the outflow is accompanied by "brain circulation," or the return of previous emigrants, so

that the human capital drain may actually be only a temporary phenomenon (Solimano, 2002: 5).









Solimano (2002: 6) believes that the only way to prevent the flow of entrepreneurs and their

business aptitude is to reduce red tape and fashion business-friendly economic policies that foster

the establishment of small enterprises. If these policy changes do not occur, an emigrant who

originally leaves the sending country to obtain a graduate degree, for example, will decide "to

stay abroad during his whole productive life" (Solimano, 2002: 17).

Docquier and Marfouk (2006: 151-152) note that several studies have found that the

prospect of migration "may in fact foster human capital formation and growth in sending

countries." This would occur because higher incomes for college-educated individuals abroad

would signal individuals in the home country to expect increased returns on their investment in

the pursuit of higher educational attainment. Docquier and Marfouk (2006) estimate that there

are between 1 and 4 million educated immigrants, defined as those persons 25 years of age and

older with at least a tertiary education living abroad, of which about 90% are living in one of the

30 member nations of the Organisation for Economic Co-operation and Development (OECD).

Unfortunately for many graduates of colleges and universities of the developing world,

academic success in the home country does not always translate into a skilled job in North

America because "foreign credentials are often not recognized in the destination country" (Kapur

& McHale, 2005: 75). Immigrants thus receive a higher return on education acquired in the

destination country. Despite the availability of public and private universities throughout the

developing world, many students therefore choose to study toward a university degree abroad.

For the majority of these students, their destination is the United States or Western Europe. In

2002, for example, there were 1.3 million foreign students studying in OECD countries (Kapur

& McHale, 2005). These students have access to some of the best professors and most advanced









facilities anywhere in the world, and the knowledge gained can pay dividends upon return to the

host country.

However, as Devesh Kapur and John McHale (2002: 32) of the Center for Global

Development state, it is problematic that "many students never return, with nonreturn rates

especially high for those from poorer countries." The overwhelming majority of graduate

students in the United States plan to stay after graduation, regardless of the political, economic,

or social situation in their home country. Still, although the overall percentage of those surveyed

who planned to remain was about 70%, the rate was much lower for students from two Latin

America countries, Brazil and Mexico. Only 34% and 32%, respectively, of the students from

those countries expected to stay in the United States (Kapur & McHale, 2005: 35).

The prospect of professional migrants returning to the home country hinges on the need for

"something to return to" in the home country (Portes, 2008: 16). The positive role of professional

migrants abroad in causing change and development in the sending country disappear "when

there is no institutional structure" to harness the talents and skills of the diaspora (Portes, 2008:

16). In such a situation, the prospects for positive externalities known as "brain circulation" are

severely limited. Such shortfalls in the structural underpinnings of governmental institutions

seem to be more likely to be present in the same developing economies that are the main source

countries for skilled emigrants.

The new brain gain and brain circulation theories are also criticized by Maurice Schiff

(2006: 203), who feels that "the impact of the brain drain on welfare and growth is likely to be

significantly smaller, and the likelihood of a negative impact on wealth and growth significantly

greater, than reported in that literature." He believes that the new brain gain literature ignores the

impact of unskilled workers emigrating in search of higher wages, thereby deemphasizing the









importance of higher expected returns from educational attainment (Schiff, 2006: 209).

Additionally, attention has not been devoted to the topic of risk aversion, which Schiff (2006:

211) states reduces the likelihood for a "brain-drain induced brain gain."

Even if there were more individuals in the home country pursuing gains from institutions

of higher education, public expenditures would be affected negatively. The use of state funds for

subsidizing tertiary education would increase as more students entered public universities, as

Schiff (2006: 212) explains:

Spending additional resources on education means that fewer resources are
available for other activities. Education is typically provided publicly and is heavily
subsidized, although an important part of the costs is borne by the students or their
families, the main cost being the opportunity cost of the students' time.

As more students forgo or delay employment to undertake university courses, personal

income and private consumption will decrease, meaning the government will collect less tax

revenue while still being responsible for the vast majority of educational costs that "fall

predominantly on the state" (Schiff, 2006: 212). As Schiff (2006) notes, two of the three

potential responses to the public expenditure pitfall are not effective solutions. Increasing taxes

would reduce disposable income, thereby causing a reduction in the demand for higher education

and an expected further reduction in the magnitude of the brain gain. Reducing the state's

subsidies for tertiary education would have a similar effect: the cost of university attendance

would rise significantly, deterring even more members of the lowest socioeconomic classes from

pursuing higher education. The third option involves maintaining educational subsidies so that

all may continue to benefit educationally, though to achieve this other public expenditures must

be cut. Eliminating public health care benefits or transportation subsidies, for example, would

cause private expenditures on these services to rise, meaning that for poor families "household

health is likely to be adversely affected" as "the nutrition and health status of the family is likely









to suffer as well" (Schiff, 2006: 213). As Latin Americans who experienced the implementation

of the structural adjustment policies of the Washington Consensus could attest, fiscal austerity

does not generally breed widespread public approval.

Caglar Ozden (2006) used United States Census data as well as the datasets employed by

Docquier and Marfouk (2006) to determine on a regional basis the fraction of college-educated

immigrants who were able to obtain salaried positions in the United States (Ozden, 2006: 237). It

is determined empirically that "ostensibly identical education degrees are not treated equally in

the labor market," even if "individuals have identical age, experience, and nominal education"

(Ozden, 2006: 237). Latin American skilled migrants to the United States have the lowest

probability of obtaining skilled jobs. Multivariable regression analysis reveals that this is

primarily the result of three variables: lack of English as a common language, lower average

tertiary educational expenditures, and political instability, all of which decrease the likelihood of

obtaining a skilled job in the United States (Ozden, 2006).

Thus, the net effect of human capital flows from developing to developed countries is

disputed: some economists and sociologists feel that positive externalities create a net "brain

gain" for the country sending migrants abroad, while the predominant theory maintains that the

sending country is invariably made worse off in the short-run and the long-run. Though higher

marginal returns from each additional year of schooling may increase educational levels in the

sending country, this effect may be offset by the fact that unskilled migrants are also usually able

to obtain higher wages in the receiving country. Additionally, skilled emigrants are unlikely to

ever return to the sending country unless significant pro-business policy overhauls occur,

meaning that, for all intents and purposes, a migrant's choice is irreversible.









The Entrepreneurial Effect of the Human Capital Drain

Though the predominant brain drain literature has neglected the role that entrepreneurship

has played in migration, there are examples of a "connection between ethnic diasporas and

entrepreneurship" (Solimano, 2002: 21-22). Some immigrant entrepreneurs, like Hungarian-born

financier George Soros and Russian-born Google co-founder Sergey Brin, are well-known,

though thousands of other success stories go unnoticed. In Latin America, immigration from

Europe and the Middle East enabled the rapid growth of the "textile sector, banking, agriculture,

[and] mining sectors" in Argentina, Chile, and Brazil in the 19th and early 20th centuries

(Solimano, 2002: 22). Unlike the scientists and technology professionals commonly identified as

central figures in the drain of human capital, an immigrant entrepreneur is "prone to risk-taking,

has a talent for combining capital, labor, and for entertaining a vision of opportunities and the

prospects for profits" (Solimano, 2002: 22).

In a 2002 study, Alejandro Portes, Luis Eduardo Guarnizo, and William J. Haller

researched the economic adaptation of entrepreneurs among three Latin American immigrant

groups living in the United States. Concentrating on the theme of transnationalism, which

emphasizes "the continuing relations between immigrants and their places of origin and how this

back-and-forth traffic builds complex social fields that straddle national borders" (Portes et al.,

2002: 279), the authors analyzed data from a 1998 survey of Colombian, Dominican, and

Salvadorian immigrants living in the Los Angeles, New York, Providence, and Washington,

D.C. metropolitan areas. Those groups were selected for their size, relative anonymity, and

diverse backgrounds: those from the Dominican Republic are said to have immigrated primarily

for economic motives, while Salvadorans in the United States are the product of a civil war that

ravaged the country for more than a decade, from 1980 to 1992 (Portes et al., 2002). While both

groups are highly clustered, with a large portion of Dominican immigrants residing in the New









York, Boston, and Providence metropolitan areas and Salvadorans concentrated in Washington

and Los Angeles, Salvadorans are often said to lack opportunities because their failure to

successfully gain political asylum in the United States has led many to toil in "low-paid menial

jobs" (Portes et al., 2002: 284).

Meanwhile, Colombians immigrated to the United States during the 1980s and 1990s due

to the ongoing "political and drug-related violence" that has characterized the country for

decades (Portes et al., 2002: 285). The Colombian immigration differs from the previous two

groups in its composition: most migrants have been members of the well-educated urban middle

and upper classes. They spread across the country, becoming "more dispersed than other

groups," while the "stigma associated with the drug trade and the perennial suspicion that others

may be involved" led Colombian immigrants to be more individualistic and less trusting of the

immigrant community at-large (Portes et al., 2002: 285).

Though only about 8% of the survey sample was self-employed, that figure represents "a

percentage of entrepreneurs five times greater than those counted by the [United States] census"

(Portes et al., 2002: 285). More than half of the self-employed were defined as transnational

entrepreneurs, who to be classified as such had to travel internationally for business reasons at

least twice annually and respond affirmatively that either: "The success ofmyfirm depends on

regular c I,,t L Ii in i/h foreign ic ,n1l ie'" or "The success of my firm depends on regular contact

0i ith [Colombia/Dominican Republic/El Salvador, according to respondent's country of origin]"

(Portes et al., 2002: 284). The researchers found that "membership in this class is associated with

high income, acquisition of U.S. citizenship, and the simultaneous preservation of a number of

ties with the home country" (Portes et al., 2002: 287-288). Colombians had much lower levels of

transnationalism among their entrepreneurial class, perhaps because "groups who came to the









United States to escape political upheaval and general violence in their home country may have

no transnational options," especially if that instability continues into the present time, as it has in

Colombia (Portes et al., 2002: 288). Portes, Guarnizo, and Heller found that well-educated and

well-connected immigrants are "overrepresented in these economic activities," meaning that

transnational entrepreneurship is likely not a form of economic adaptation, as had been

hypothesized previously (Portes et al., 2002: 290). Still, high levels of education or wealth may

induce immigrants to avoid entrepreneurialism altogether, as they may have a better chance of

achieving success through a salary-based profession (Portes et al., 2002: 293).

Significance

Given the extent of Venezuelan immigration to Florida over the last dozen years, it

appears that both Venezuela and Florida are being affected economically. Through interviews

with Venezuelan businesspeople who have emigrated to Florida and professionals still residing

in Venezuela, along with an analysis of Venezuela's economic performance and decline during

the second half of the twentieth century, I seek to determine the cause of Venezuelan

entrepreneurial migration during the regime of Hugo Chavez. My research then examines the

results of the "business drain," thereby contributing to the debate on the net effect of human

capital migration.

Organization

This thesis is divided into five parts, including this introductory chapter. The second

chapter contains a brief historic overview of modem Venezuela, which incorporates the period

from the overthrow of the Perez Jimenez military dictatorship in 1958 to the present. The third

chapter provides a detailed look at the business environment in Venezuela, how the business

environment compares to those of its Latin American counterparts, and how economic, political,

and social factors have shaped the evolution of the Bolivarian business environment since Hugo









Chavez Frias' election to the presidency in late 1998. From United States Census Bureau data

and international and local media coverage it traces the development of Venezuelan communities

in the state of Florida. The third chapter introduces a case study of entrepreneurship among

Venezuelan immigrants to Florida. It reports the findings of the series of interviews with

Venezuelan professionals currently living in the state. The final section analyzes the evidence

gathered and presents an outlook for the future of the environment for private business in

Venezuela, in addition to offering potential questions for future research.









CHAPTER 2
CHAVISMO AND ITS ANTECEDENTS

The populist rhetoric employed by Hugo Chavez in his frequent interactions with the

Venezuelan masses generally blames the country's status on the failings of his predecessors, who

he identifies as corrupt neoliberals that served as lackeys to the interests of the Venezuelan

oligarchy and the United States. Yet, corruption is still rampant in today's Venezuela, though

with a different set of beneficiaries. Similarly, the policies favored by the Chavez government

are not a break from the past. Rather, many closely mirror failed policies implemented by leaders

of the center-left Acci6n Democrdtica (AD) and the center-right Comite de Organizaci6n

Political Electoral Independiente (COPEI) during the four-decade period that stretched from the

inauguration of democracy in 1958 to Chavez's triumph in the 1998 elections.

Though many Venezuelans look back fondly on the business environment of the

pre-Chavez era, the recollections are not entirely accurate. Central planning, land reform,

nationalizations, capital controls, price controls, foreign ownership restrictions, high public

spending, and an overreliance on the export of hydrocarbons were characteristic of the

Venezuelan economy for much during the second half of the twentieth century, when

entrepreneurs with political clout influenced the government to protect their inefficient

enterprises from international competition (Faria, 2008) The country did manage to achieve rapid

growth during the 1970s, but by the end of the 1990s real per capital income was at the same

levels it was in 1960 (DiJohn, 2009).

This chapter explores the course of events that shaped the Venezuelan business

environment and enabled Chavez's rise to power. It then highlights the factors responsible for

the further deterioration of the business environment under Chavez's leadership. The chapter









concludes with an overview of how Venezuela ranks internationally in terms of international

competitiveness.

Forty Years of Punto Fijo

Though Venezuela's "long-standing history of democratic rule" is often cited (Vanden &

Prevost, 2009: 236), a closer examination reveals that this was not exactly the case until well into

the second half of the twentieth century, after the fall of the dictatorship headed by Marcos Perez

Jimenez. The inauguration of more than five decades of uninterrupted democratic rule occurred

in 1958, when rioting encouraged by the 23rd of January movement (Movimiento 23 de enero)

forced Perez Jimenez into exile in the Dominican Republic (Caballero, 1998). Though the

leaders of the movement promised to defend the institutions of democracy, officials of three of

the main political parties soon undermined it with a power-sharing arrangement (Tarver &

Frederick, 2006).

Signed thirty-eight days before the national elections by AD, COPEI, and the less

influential Uni6n Republicana Democrdtica (URD), the Pact of Punto Fijo ensured that under

this partidocracia, or nominal democracy controlled by an alliance of the main political parties,

power would remain in the hands of a few (DiJohn, 2009). De la Barra and Dello Buono (2009)

contend that there was little difference between AD and COPEI. Both were social democratic

parties that guarded the interests of the elite while working "in close cooperation with

multinational corporations" (de la Barra & Dello Buono, 2009: 96).

Still, after 1958 Venezuela's military stayed out of the political sphere, in contrast with

the majority of the other countries of the region, where leaders of the armed forces had unseated

democratically elected civilian governments. Though AD and COPEI "governed through

compromise and shared spoils," the Punto Fijo pact allowed for both freedom of the press and

levels of political stability that were uncharacteristic of the region (Sylvia & Danopoulos, 2003:









64). In late 1958, free elections brought AD's R6mulo Betancourt to the presidency. Ten years

later, the first peaceful transition of power would occur following the election of COPEI's Rafael

Caldera (Hellinger, 2009).

The Presidency of R6mulo Betancourt (1959-1964)

R6mulo Betancourt was elected as president with cross-class support that spanned from

the non-communist left to the urban middle class (DiJohn, 2009). Betancourt was not new to the

political scene in Venezuela. In fact, he had previously served as president from 1945 to 1948,

coming to power via a coup d'etat led by AD and the military against Isaias Medina Angarita,

who had been president since being indirectly elected by the Venezuelan Congress in 1941

(Caballero, 1998: 84-85). Betancourt and the co-leaders of the 1945 coup followed through on

their promise to institute direct elections for the presidency in late 1947, though AD's R6mulo

Gallegos, Betancourt's successor, was overthrown by a junta led by Perez Jimenez and Carlos

Delgado Chalbaud after serving only nine months as president (Caballero, 1998: 85-86, 94).

Remaining the leader of AD while living in exile, Betancourt oversaw the party's integration into

Socialist International and, with the party, "cultivated a radical and populist image" that

eventually gained widespread support. (DiJohn, 2009: 198).

As had been the case since oil was first discovered in Lake Maracaibo in 1912,

Venezuelan export earnings under Betancourt were heavily dependent on the petroleum industry

(Bulmer-Thomas, 2003). To maximize the country's benefit from its reserves, Betancourt's

administration proposed the creation of an international cartel, known as the Organization of

Petroleum Exporting Countries (OPEC), which was founded in 1960 (Faria, 2008: 522). In

addition, Betancourt decreed the creation of the state-owned Venezuelan Petroleum Corporation

(Corporaci6n Venezolana de Petroleo, or CVP) and blocked foreign oil companies from being

granted the rights to new discoveries of oil, thus taking away the incentive for further exploration









(Faria, 2008: 522). With the proceeds gained, Betancourt substantially increased government

outlays on social programs (Faria, 2008: 522).

In addition to increased government services for the poor, Betancourt hoped to help the

poverty-stricken by engineering his economic policies to achieve a more equitable income

distribution. Encouraged by the Soviet Union's apparent success, Betancourt created an agency

responsible for the central planning of the economy. In a series of actions that would be repeated

by a number of his successors, Betancourt devalued the bolivar and implemented price and rent

controls that "wiped out the market for rental dwellings and helped to foster today's slums"

(Faria, 2008: 522). Since AD had agreed with the other parties to limit the spread of radicalism,

Betancourt set aside his plans for full-scale land reform and instead chose to pursue the

redistribution of only the largest of the latifundios (Faria, 2008). The government paid market

value for the seized land, in the form of 30% cash and 70% long-term government bonds (Tarver

& Frederick, 2006).

In 1960, the average Venezuelan worker was more productive on a gross domestic

product (GDP) per worker basis than counterparts in Switzerland, Canada, and Australia (Faria,

2008: 520). Under Perez Jimenez, per capital GDP growth rates had averaged 8.0% between 1950

and 1960. Though Venezuela continued to grow at an annual rate of 6.3% during the 1960s, the

policies attributed to Betancourt allowed uncompetitive private firms to survive and played a role

in Venezuela's coming economic downturn (Bulmer-Thomas, 2003: 300; Faria, 2008).

The Presidencies of Raul Leoni (1964-1969) and Rafael Caldera (1969-1974)

Due to the 1961 constitution's provision that prohibited the president from being

reelected, Betancourt ceded the leadership of AD to fellow party founder Raul Leoni, who won

the presidential election in December 1963. Leoni stepped up efforts to modernize the economy

through import-substitution industrialization (ISI), the policy of establishing import quotas and









high tariff barriers to stimulate the development of infant domestic industries. Venezuelan

economist Hugo Faria (2008) argues that the ISI policies pursued under Leoni misallocated

scarce government resources and allowed labor unions to gain too much influence. Though oil

prices during Leoni's presidency remained stable, changes to the Law of Hydrocarbons and

higher taxes on foreign oil companies allowed the state to increase the benefits derived from the

oil reserves (Tarver & Frederick, 2006).

COPEI's Rafael Caldera took the oath of office in 1969, completing the first peaceful

alternation of power between parties in Venezuelan history (Hellinger, 2009). Though Caldera

was nominally a member of a center-right party, his policies further sheltered the Venezuelan

economy from abroad by disallowing majority foreign ownership of private companies (Faria,

2008). Additionally, Calera pushed through the 1971 Hydrocarbons Reversion Law, which

provided that the Venezuelan government would gain control of each oil company's assets at the

conclusion of the concessionary period (Tarver & Frederick, 2006). Still, Caldera enabled the

possibility of future success by rapidly modernizing the country's infrastructure and increasing

educational expenditures, and inflation remained at low levels, below 2% per year, throughout

the terms of both Leoni and Caldera (Tarver & Frederick, 2006). Despite changing laws that

increased the tax burden of businesses and discouraged foreign investment, Venezuela continued

to be widely seen as business-friendly by the international community because of its relative

political stability (Johnson, 1978: 173-174).

The First Term of Carlos Andr6s Perez (1974-1979)

Elected to the presidency by a 12 percentage point margin (48.7% to 36.7%) over

COPEI's Lorenzo Fernandez and ten other minor-party candidates that split 14.6% of the vote in

an American-style campaign directed by hired political consultants and complete with catchy

television and radio advertisements, AD's Carlos Andres Perez moved into Miraflores Palace in









early 1974 just as the price of oil was skyrocketing worldwide during the 1973 oil crisis (Tarver

& Frederick, 2006; DiJohn, 2009). Oil revenues quadrupled and accounted for 40.8% of gross

national income in 1974, Perez's first year in office (Freije, 2008: 86). The revenues taken in by

the treasury increased significantly, from $3.82 billion in 1973 to $9.95 billion in 1974 (Tarver &

Frederick, 2006: 125).

Spurred on by the increase in oil revenues, Perez launched a series of initiatives that

together "marked the commencement of a patrimonial government" (Faria, 2008: 523). His plan,

known as La Gran Venezuela, sought to increase the state's productive capacity through

nationalizations and the creation of strong, vertically-integrated state-owned enterprises (DiJohn,

2009). Perez implemented more price controls and ended the independence of the central bank,

bringing it under state control by purchasing all of the shares controlled by the private sector

(Faria, 2008). In January 1975, Perez nationalized the iron industry, kicking U.S. Steel and

Bethlehem Steel out of the Guayana region (Tarver & Frederick, 2006). One year later, Perez

nationalized the 19 oil companies operating in Venezuela and combined them with the CVP to

found Petroleos de Venezuela, S.A. (PDVSA), the state oil company.

Perez recognized that not all Venezuelans were benefitting equally from the oil boom,

and thus sought to grant educational opportunities to poor and rural residents. He engineered the

creation of a scholarship program for Venezuela's underprivileged youth, in order to "nationalize

the nation's human resources" (Tarver & Frederick, 2006: 127). Though the program was wildly

successful in that regard (75% of the scholarships went to poor residents, and 68% of the

beneficiaries lived outside urban areas), the scholarships required that the students study

professions related to the iron and oil & gas industries (Tarver & Frederick, 2006). Though the

Program Gran Mariscal de Ayacucho managed to bring about a homegrown, skilled class of









scientists and oil engineers, the program created a dearth of qualified professionals in other areas

and reemphasized Venezuela's overreliance on the petrochemical sector.

Though the country could have protected itself from the ever-present threat of external

economic shocks by emphasizing investment in private enterprise and sectors that were not

dependent on the export of primary products, as well as by maintaining a rainy-day fund for

excess fiscal reserves, the administration of Carlos Andres Perez chose instead to spend

extravagantly, thus crowding out private investment (Bulmer-Thomas, 2003: 340-343).

Government spending in the five-year term of Perez exceeded the total sum spent by the state

since Venezuela broke off from Gran Colombia in 1830, a period of 143 years (Tarver &

Frederick, 2006: 125). The surge in commodity prices throughout Perez's term allowed the

government to attempt to jumpstart domestic industrial production by opening automobile

factories and signing joint-venture deals with foreign metal-producing firms (Bulmer-Thomas,

2003: 334). During the same period, Venezuela lent $850 million to the Inter-American

Development Bank, the World Bank, and the International Monetary Fund (Tarver & Frederick,

2006: 125).

Foreign-exchange earnings had risen considerably; the unit value of Venezuelan exports

was twelve times as large in 1980 as it had been in 1970 (Bulmer-Thomas, 2003: 332). The gains

from the oil boom were widespread; it was said that nearly anyone could afford weekend trips to

Miami to purchase the latest fashions, and the phrase "td barato, dame dos" ('it's cheap, give me

two') became part of the national vocabulary due to the appreciation of the bolivar (Marquez,

2003). However, temporary price increases rather than an increase in overall output were

responsible, leaving the country vulnerable to a crash in commodity prices and the debt crisis of

the 1980s (Bulmer-Thomas, 2003: 334-335). Despite the creation of PDVSA, real GDP per









capital was unchanged in the following years, and the country was only momentarily saved from

economic disaster "by the spectacular improvement in the [net barter terms of trade] that pushed

real gross domestic income up rapidly and gave the temporary illusion of prosperity"

(Bulmer-Thomas, 2003: 334).

Until the consolidation of the oil industry in PDVSA by Perez, the country had been

well-known for its business-friendly attitude, even under the leadership of the center-left AD

party (Bulmer-Thomas, 2003). Even as Perez increased state intervention in the economy to the

consternation of some members in AD and accusations of corruption were leveled by the COPEI

opposition, that reputation held strong, perhaps because Perez fairly compensated the foreign oil

companies and then contracted their services to provide training and instruction to new PDVSA

employees (Tarver & Frederick, 2006). Still, by the end of his term AD split into opposing

factions of Betancourt's old guard and Perez's reformers, and infighting among the party ranks

continued unabated for decades (DiJohn, 2009).

As Carlos Andres Perez left office, few could have predicted what would come next. The

economy had grown at a faster rate since 1950 than any of its Latin American counterparts, and

despite the rapid increase in the price of oil after 1973 Venezuela maintained inflation rates in

line with those of the United States (Santos, 2003). By all accounts, 1978 was the peak year

economically speaking for Venezuela. Per capital income and private investment as a percentage

of GDP have never again reached the levels attained in 1978, the weakness of the economy has

forced the devaluation of the bolivar on several occasions, and inflation and unemployment have

remained constant problems (Santos, 2003).

The Presidencies of Luis Herrera Campins (1979-1984) and Jaime Lusinchi (1984-1989)

Luis Herrera Campins, a member of COPEI, was elected by a narrow margin over the

AD candidate in December 1978. Among his first acts was to accuse the Perez administration of









corruption for misappropriating public funds. In one instance, the Venezuelan government paid

$20 million for a Norwegian vessel known as the Sierra Nevada, or $8.1 million more than the

actual sticker price; it was later discovered by a congressional committee that the excess sum

was distributed to administration officials and that Perez was entirely aware of the overpayment

(Tarver & Frederick, 2006). In another case, Perez was accused of giving millions of dollars to a

small group of his most ardent supporters known as the doce ap6stolos (twelve apostles) in

return for their assistance during the 1974 campaign (Tarver & Frederick, 2006). Despite the

evidence, nothing became of the corruption charges. Even COPEI's congressional officials

"were unwilling to label Perez as morally and administratively corrupt" (Tarver & Frederick,

2006: 135).

Oil prices continued to rise in 1979 and 1980 as a result of the Iranian revolution and the

onset of a war between neighboring Iraq and Iran (Tarver & Frederick, 2006). Herrera Campins

removed the price controls implemented by Perez in an effort to stimulate competition among

private firms, thus driving consumer prices lower. Instead, more profligate spending by the

government caused the external debt to double to $32 billion and inflation soared (Faria, 2008;

Caballero, 1998). As Jonathan DiJohn (2009: 232) states, external debt "is normally incurred to

finance insufficient savings, current account deficits, and fiscal shortfalls, none of which applied

to Venezuela over this period."

Debt was not only increasing in Venezuela. The windfall oil revenues, known as

Eurodollars, reaped by the OPEC countries in the 1970s were deposited in dollar-denominated

accounts in banks throughout North America and Europe. As a result, banks needed to loan out

this money to maintain profitability. Latin American governments, as well as other sovereign

entities throughout the developing world, accepted floating-rate loans tied to the London









Interbank Office Rate (LIBOR). The oil shocks of 1973 and 1979 caused output to decline and

inflation to skyrocket in the United States. To attack this systemic stagflation, the United States

Federal Reserve Board under the leadership of Paul Volcker increased interest rates rapidly

between 1979 and 1981 (DiJohn, 2009). The higher interest rates caused an appreciation of the

dollar and, combined with a sharp decline in commodity prices worldwide, made it increasingly

difficult for debtor countries to service their obligations.

As interest rates and inflation rose, capital began to flee Venezuela, to the tune of

$8-10 billion in 1981. In August 1982, Mexico declared a moratorium on its debt payments;

much of the region soon followed. The extent of capital flight from Venezuela reached

unprecedented levels during 1982 and the first month-and-a-half of 1983, when the average sum

fleeing the country totaled $500 million weekly (DiJohn, 2009: 237). On February 18, 1983,

Herrera Campins finally took action. Capital controls were put in place to stem the flow of

capital out of the country, and for the first time in 22 years the bolivar was devalued, by 40%

(Caballero, 1998; DiJohn, 2009). Herrera Campins then initiated a dual exchange rate system,

where importers approved by a government agency were allowed to buy dollars at a more

favorable rate. Not surprisingly, the Regimen de Cambio Diferencial (Differential Exchange

Regime) became the prime example of corruption in the pre-Chavez era, as the agency's officials

had free reign to determine who would and who would not receive the preferable rate (Caballero,

1998; Tarver & Frederick, 2006). For those who had to buy dollars on the black market or at the

non-preferential rate, it was in effect a massive devaluation.

Economic progress under Herrera Campins was nonexistent: unemployment increased to

over 20%, and real GDP decreased by 1.2% annually between 1979 and 1983. Though the events

of his term were not entirely the fault of Luis Herrera Campins, a claim made famous by his









declaration that he was "receiving a mortgaged country" (Caballero, 1998: 127), COPEI had lost

much of its credibility. The party would not win another presidential election.

Jaime Lusinchi and his AD followers easily won control of the government, though his

five-year term produced little besides more inflation and more corruption. Inflation rates

continued to be persistently high, at an annual average of over 20% during the entire decade

(DiJohn, 2009: 239). The Lost Decade of the 1980s caused per capital GDP to decline at an

annual rate of 3.4%, far worse than the overall Latin American rate of -0.9% per annum during

the same time period (Franko, 2007: 69). The flight of capital somewhat slowed, but another

devaluation of the bolivar in 1986 and the expansion of the multiple exchange rate system to

three rates (for basic imports, other trade, and the money market) ensured that the capital that had

been lost would not return (Tarver & Frederick, 2006). Daniel Hellinger (2009: 474) writes that:

The administration of President Jaime Lusinchi (AD) touched new depths of
corruption. Wealthy Venezuelans showed a special fondness for Florida real estate
and imported whisky. ... At the grassroots, petty corruption became a way of life.

The Second Term of Carlos Andr6s Perez (1989-1993)

While still in office, Lusinchi took the strange step of actively campaigning without

success against former president Carlos Andres Perez in AD's primary campaign (Tarver &

Frederick, 2006). Since per capital income levels had continued to fall from their mid-1970s

highs, Venezuelans looked back fondly on the successes (and the excesses) of Perez's first term,

when he presided over the nationalization of the oil, iron ore, and bauxite industries and the

creation of PDVSA. It was widely though that during a potential second term he would reject the

neoliberal reforms encouraged by the World Bank and the International Monetary Fund (IMF),

two organizations that he disparaged during the 1988 election campaign as "genocide workers in

the pay of economic totalitarianism" and "a neutron bomb that killed people, but left buildings

standing" (Ali, 2006). With support for COPEI continuing to falter, Perez was elected for a









second term with the support of 52.9% of the electorate; COPEI's Eduardo Femandez finished a

distant second, with 40.4% of the votes.

Upon taking office in 1989, the newly inaugurated Perez was faced with oil that was

selling for less than half of its 1974 price, more than $35 billion in foreign debt, and

unsustainable government expenditures (Tarver & Frederick, 2006: 140). With a lack of other

viable options, Perez took the advice of cabinet members, later known as the IESA Boys for their

association with the Instituto de Estudios Superiores de Administraci6n (IESA), Caracas' private

free market-oriented business school, and chose to implement the economic austerity measures

recommended by the IMF (de la Barra & Dello Buono, 2009). The IESA Boys, led by planning

minister Miguel Rodriguez, thought Venezuela could follow the path that Chile previously

blazed under the economic direction of Pinochet's Chicago Boys during the early 1980s (DiJohn,

2009). Thus, Perez was forced to apply the very series of structural adjustment policies that he

had railed against in his campaign speeches in order to obtain loans from international financial

institutions. The Plan de Ajuste Econ6mico mandated the devaluation of the bolivar and heavily

reduced social programs and subsidies for public services and transport.

Meanwhile, the poorest members of Venezuelan society had been abandoning the

countryside for more than a decade, fleeing to the outskirts of western Caracas where they

constructed slums known as ranchos. The rapid urbanization was complicating the distribution

of clean water and electricity and also was a cause of increasing crime in the cities. The center of

the political spectrum that was occupied by the signatories of the Punto Fijo pact "seemed

unwilling or unable to cope effectively with the new reality" (Sylvia & Danopoulos, 2003: 65).

In protest to the series of policy changes, Venezuelans from all walks of life, but especially the

poor, descended on Caracas for a demonstration that the armed forces were ordered to crush. The









result was the Caracazo, the infamous mass riot of February 27, 1989, that left hundreds (or

maybe thousands) dead in Caracas at the hands of the military and ushered in an era of political

instability and weakness (Hawkins, 2003; Tarver & Frederick, 2006).

Ximena de la Barra and Richard A. Dello Buono (2009: 17) call the violent Caracazo

revolt the "event that first revealed the upsurge of popular resistance that was gathering, no

longer seeking recourse through the discredited political parties that remain dominated by elites."

In subsequent months, a general strike took place, more violent clashes with the armed forces

occurred, and the country's universities had to be closed after the police killed 10 student

demonstrators during a protest (Tarver & Frederick, 2006: 143). The events of February 1989

also had a profound effect on a 34-year old lieutenant colonel named Hugo Rafael Chavez Frias.

Chavez, who with fellow military officers years earlier had covertly formed the subversive

Revolutionary Bolivarian Movement-200 (MBR-200) for the purpose of overthrowing Perez and

the corrupt puntofijista system, immediately sped up plans for their coup d'etat as other career

members of the armed forces joined their ranks following the government's violent response to

the Caracazo (Sylvia & Danopoulos, 2003).

The attempted golpe de estado that occurred in the early morning hours of February 4,

1992, took place in the context of three years of more economic difficulties for the Venezuelan

people. Normally, the removal of price controls as mandated by the Perez administration would

have had a positive impact on an economy based on the gains from competition. Unfortunately,

consumer prices were also increasing by more than 30% annually. Under circumstances of rapid

inflation such as that being experienced in Venezuela, consumers are unable to distinguish

between price increases that signal relative scarcity and those that are solely caused by the

inflationary environment (Faria, 2008: 524).









The coup d'etat of February 4, 1992, was nearly successful. All but one of the lieutenant

colonels managed to achieve his objectives; Maracaibo, Valencia, and Maracay were captured by

the rebel leaders, but Chavez's soldiers failed to control the state television station and the

Miraflores presidential palace (Tarver & Frederick, 2006). The coup d'etat failed to topple Perez,

who had returned to metropolitan Caracas' Maiquetia International Airport following the World

Economic Summit in Davos, Switzerland, and was en route to Miraflores. After being arrested

by armed forces loyal to the elected government, Chavez was incredulously allowed the

opportunity to speak before a national television audience in an effort to convince the remaining

factions to lay down their arms and prevent further bloodshed (Tarver & Frederick, 2006).

Standing in front of the cameras and dressed in military fatigues and his red paratrooper's beret,

Chavez recited a statement of about one minute and ten seconds, parts of which made him a

national hero in eyes of many:

Friends, lamentably, for now the objectives we considered were not achieved in the
capital city. That is to say, we here in Caracas have not managed to take power.
You did it very well over there, but now is the time to avoid more bloodshed. It is
time to reflect; new situations will come and the country must definitively get on
the path to a better destiny. (Chavez Frias, statement to the Venezuelan people,
Feb. 4, 1992; http://www.youtube.com/watch?v=VBUo-pYeVfQ; translated by
author)

The attempted coup and por ahora speech catapulted Chavez into the national spotlight,

and a large portion of Venezuelans surveyed in the aftermath of the failed coup actually

expressed support and admiration for Chavez, who they believed was fighting to liberate the

country from the corrupt decades-longpuntofijo power-sharing agreement (Tarver & Frederick,

2006). In the National Assembly, members of COPEI and some AD congressmen refused to

condemn the coup; former president Rafael Caldera used the opportunity to attack the corruption

and shortcomings of Perez and AD. Nine months later, another coup was attempted when a

group of senior military officers unrelated to the MBR-200 bombed military and civilian









installations throughout the country and broadcast an unsuccessful call to arms (Tarver &

Frederick, 2006).

The second failed coup seemed to signal the end of the road for Carlos Andres Perez. A

week later, regional elections confirmed the end of the two-party system as left-wing parties La

Causa R (Radical Cause) and Movimiento al Socialismo (MAS) gained support despite rising

abstention rates (Tarver & Frederick, 2006). Although Chavez was imprisoned in Estado

Miranda's notorious Yare prison, his influence was becoming greater than that of either main

political party. Banding together to prevent more social unrest, the National Assembly twice

voted across party lines in 1993 to indefinitely suspend and later impeach Perez from the

presidency on charges of corruption; they later banned him from ever seeking public office again

(Tarver & Frederick, 2006).

The Second Term of Rafael Caldera (1994-1999)

The 1993 presidential elections occurred with Perez and Chavez both imprisoned.

Caldera resigned from COPEI, the party he had created in 1946, after party members unhappy

with Caldera's "manipulative and politically opportunistic" rhetoric following the coup of

February 4 chose to instead nominate Estado Zulia governor Oswaldo Alvarez Paz (Tarver &

Frederick, 2006: 146). Despite being 77 years old, Caldera quickly managed to organize a

coalition of 17 political parties that included the centrist URD party and the three most

influential left-wing parties, MAS, the Communist Party of Venezuela (PCV), and the People's

Electoral Movement (MEP). To gain support from poor Venezuelans who had demanded the

release of Chavez, Caldera campaigned almost entirely on the promise that he would pardon the

conspirators of the 1992 coup (Tarver & Frederick, 2006). The ploy was successful; Caldera's

Convergencia alliance received only 30.5% of the total vote, but was able to outpace AD's

Claudio Fermin (23.6%), Alvarez Paz (22.7%), and La Causa R's Andres Velasquez (21.9%).









The results of the election indicated an alarming rise in apathy as well as the confirmation

that AD and COPEI were no longer national forces. As recently as the 1988 elections, the two

parties had combined to receive 93.3% of the vote. In 1993, that percentage fell by more than

half, to 46.3%. Only 60.2% of the electorate voted in December 1993, a fall of 21.7 percentage

points from the 81.9% that voted to elect Carlos Andres Perez in 1988 (Consejo Nacional

Electoral, 2006).

The country that Caldera inherited in his second term was, like the situation earlier faced

by Perez, completely different than the peaceful, prosperous one that he governed from 1969 to

1974. In 1994, the first year of Caldera's term, a severe financial crisis hit the Venezuelan

economy. As inflation rose above 40% and the government was forced to repeatedly devalue the

bolivar, several of the country's largest banks failed (Santos, 2003). Once again, controls were

put in place to prevent capital from flowing out of the country. Social upheaval continued, and

Caldera responded by suspending freedoms guaranteed in the 1961 constitution (Tarver &

Frederick, 2006).

As the 1998 presidential elections neared, Venezuela was in disarray. Its leader, Caldera,

had turned 80 years old in 1996. The economy, long the envy of Venezuela's less prosperous

neighbors, fought helplessly against a tide of inflation and oil prices below $10 per barrel.

Though economic growth turned positive by the 1990s, the country grew at one of the slowest

rates in the region per capital GDP only increased at an annual rate of 0.3% (Bulmer-Thomas,

2003: 383). Over the course of the twenty year period between 1980 and 2000, the percentage of

households below the poverty line steadily increased. In 1980, 35% of Latin American

households were living in poverty, compared with only 22% in Venezuela. By 2000, a year after

Chavez's inauguration, the Venezuelan percentage had doubled to 44%, while the Latin









American rate remained constant at 35% (Bulmer-Thomas, 2003: 387). Real per capital capital

endowment in Venezuela, which in 1970 was 30% of the developed country average, fell to 9%

by the end of the millennium (Baptista, 2003: 65). The period had been so turbulent that

historians H. Micheal Tarver and Julia C. Frederick described it as the age of "Chaos, Futility,

and Incompetence" (Tarver & Frederick, 2006: 139).

The 1998 Election

The MVR (Movimiento Quinta Reptublica) party, formed by Chavez and his band of

unsatisfied political outsiders, were able to capitalize on the inability of AD, COPEI, and civil

society to overcome the hardships of the preceding decades (Sanoja, 2009). AD's 1998

candidate, Luis Alfaro Ucero, was said to employ a "Stalinist approach to party discipline" that

typified "all that is wrong with Venezuela's politics" (The Economist, 1998a), while Chavez's

two other opponents, Henrique Salas Romer (Proyecto Venezuela) and former Miss Universe

Irene Siez (COPEI), did little to differentiate themselves from the failed policies of the previous

years. His attacks on the market economy were widely popular among the working class, and

even supporters of the free market like The Economist magazine wrote on various occasions

leading up to the election that Chavez "is not quite the ogre he is painted as" (The Economist,

1998a) and that "the fears surrounding Colonel Chavez may be overdone" (The Economist,

1998b).

The principal theme of Chavez's campaign, however, was that he would put an end what

he, along with an increasing number of Venezuelans, believed were forty years of failed policies

and corruption (Marcano & Barrera Tyszka, 2007). Even those who opposed Chavez desired

change; yet, the opposition's candidates "seemed unaware of the fact that the country was

changing," as none of the three provided a credible platform nor discussed where they stood on

the issues (Marcano & Barrera Tyszka, 2007: 18). Days before the election, AD and COPEI's









party leaders scrambled together for one final power-sharing hurrah. The party officials decided

that they would withdraw their sponsorships of the faltering candidacies of Ucero and Saez and

together place their hopes on Salas Romer.

In the end, however, Venezuelans placed their faith in Chavez to reverse the trends of

widespread corruption and economic deterioration that had plagued the country for decades.

Chavez, whose platform also called for an increase in the minimum wage and wise spending on

windfalls from the vast supplies of oil, received more than 56% of the vote in the December

1998 election. The election of the former paratrooper, who had been denied a visa to visit the

United States the previous year and released from prison only three years before that, assured the

demise of the Punto Fijo Pact and Venezuela's traditional party structure, but it was unclear what

would replace them (de la Barra & Dello Buono, 2009).

The Chavez Era

Promising to end "all the corruption that Venezuelan democracy had accumulated"

during its twentieth-century reign, Chavez prepared for office with high approval ratings and

even higher hopes (Gonzalez de Pacheco, 2003: 339). His approval ratings during the first

months of his presidency were astronomical. Eight months into his first term, 85% of the

populace approved of his performance (The Economist, 1999b). During his campaign and first

months in office Chavez refrained from using inflammatory rhetoric (de la Barra & Dello Buono,

2009). The fears of the wealthy were downplayed by the Economist Intelligence Unit, who upon

Chavez's inauguration had stated that he was "appearing statesman-like and prudent, wooing

business, investors and multilaterals alike" (Economist Intelligence Unit, 1999: 7). In a

wide-ranging interview with CNN en Espahol that was taped on the eve of the 1998 presidential

election, Chavez stated that there was no existing tension between him and the private media,

that he would not nationalize any private industry or business, and that he would pursue foreign









investment from and friendship with the United States (Primera, 2008). Perhaps most

perplexingly, he stated unequivocally that Cuba was a dictatorship (Primera, 2008). He then told

Globovisi6n: "I am not a socialist. I think that today's world, the Latin America of the future,

needs a step forward; we are moving away from socialism" (Primera, 2008).

Three weeks before his February 1999 inauguration, The Economist (1999a) reported that

Chavez intended to "show his uneasy counterparts and foreign investors that he is, after all, a

man with whom they can safely do business." He was said to be making taking all of the right

steps for pragmatism: visiting Argentina and Brazil to discuss Venezuelan inclusion in the

Mercosur regional integration and free-trade project, jetting through Western Europe and Canada

to ease political and business leaders, joining with Colombian leader Andres Pastrana in Cuba to

discuss a resolution to the political turmoil, and even being welcomed to the White House by Bill

Clinton (The Economist, 1999a). Even his choice of cabinet members and ministers was also

reassuring, as he allowed the outgoing technocratic finance minister to stay on and included a

mix of academics and military officials to serve under him (The Economist, 1999a). There was

not much that the business community and foreign investors could criticize.

Chavez had campaigned that reform would be impossible under the same constitution

that was carefully constructed by AD and COPEI leaders in 1961. To ensure success, he and the

MVR capitalized on his initial popular support by calling elections for a constituent assembly

that would be responsible for drafting the new constitution. Over 90% of the seats in the

constituent assembly were won by supporters of the president (Gott, 2005: 144). The Venezuelan

public approved the new constitution by popular referendum on December 15, 1999. The

constitution extended the presidential term from five to six years, mandated a new presidential

election to be held the next year, allowed the president the possibility of re-election, provided the









option of impeachment via popular referendum, and disbanded the bicameral legislature, both

houses of which were under the control of an opposition coalition headed by AD, in favor of a

single National Assembly that was to be implemented following the 2000 elections (Tarver &

Frederick, 2006). Additionally, the country was rebranded with a new name in honor of its

founding father, Sim6n Bolivar. The land that had for 159 years been known as the Republic of

Venezuela would henceforth be referred to as the Repfublica Bolivariana de Venezuela

(Bolivarian Republic of Venezuela).

Interestingly, Chavez's primary rival in the 2000 presidential election was Zulia governor

Francisco Arias Cardenas, a fellow graduate of the Academia Militar de Venezuela who had

joined Chavez's MBR-200 in 1985 and commanded the battalions that successfully captured the

city of Maracaibo during the February 4, 1992, failed coup d'etat. Arias was one of Chavez's

many former allies who had "turned away from what they perceived to be an increasingly

radical, personalistic project" (Hawkins, 2003: 1143). Despite the highest unemployment in the

region and negative economic growth of 7.2% during 1999, Chavez won with 59.8% of the vote,

compared with only 37.5% for Arias Cardenas (Hawkins, 2003: 1143; Consejo Nacional

Electoral, 2006). In 2005, Chavez and Arias Cardenas reconciled, and the once-again Chavista

has since been designated as Venezuela's Ambassador to the United Nations and Deputy Foreign

Minister for Latin American and the Caribbean.

Chavez's MVR party won 91 of the 165 seats in the 2000 parliamentary elections, thereby

placing the legislative branch of government firmly in-step with the ideals of Chavez and

reducing the Punto Fijo-era parties to what could be deemed as "electoral insignificance"

(Hawkins, 2003: 1142). The composition of the National Assembly has been overwhelmingly









pro-Chavez since its inception, in part due to the fact that the opposition parties have boycotted

some elections, such as the most recent 2005 legislative elections (Tarver & Frederick, 2006).

Radicalization of the Chavez Regime

With an entire six-year term ahead of him and the support of the unicameral National

Assembly assured, Chavez became "more and more aggressive toward the middle and upper

classes" immediately after the 2000 election season, finally reverting to the populist, pro-poor

and anti-rich rhetoric that had gained him national attention upon his 1994 release from Yare.

(Tarver & Frederick, 2006: 152). After visiting Fidel Castro in Havana numerous times and

undertaking a state trip to visit Saddam Hussein in Baghdad (Marcano & Barrera Tyzska, 2006),

Chavez angered middle- and upper-class households with his approval of Resolution 259, which

intended to rewrite the textbooks of public and private school with "praise-filled descriptions of

the 1992 coup and the Bolivarian Revolution" (Marcano & Barrera Tyzska, 2006: 143).

Shortly after the 2000 election, the National Assembly passed an Enabling Law, which

granted Chavez the right to rule by decree for a one-year period in order to pass sweeping

reforms that might be able to resuscitate the struggling economy (Nelson, 2009). Chavez did not

take advantage of his emergency powers until the day the Enabling Law was set to expire; then,

in the span of a few hours, Chavez decreed 49 controversial new pieces of legislation that

"shocked many people, chavista and anti-chavista alike" (Nelson, 2009: 40). Among the new

laws announced were a tax on all withdrawals from banks, a more progressive tax system, a

hydrocarbons law that would direct even more funds from the sale of oil to the state, and a land

reform law that would allow the government to expropriate land from private citizens; the law

was "so vague that the government could legally take any land it wanted which it did" (Nelson,

2009: 40). Chavez then carried through with threats to nationalize key industries and reduce the

control that he claimed oligarchs held over the country (Paris, 2003). Fearful of Chavez's threats









to redistribute land and wealth, many of the elite fled the country in search of security in the

United States.

The Events of April 2002

Chavez's extremely polarizing decision to appoint a new board of directors, made up

entirely of Chavistas with no prior oil background, for PDVSA, the state independent oil

company, caused a two-month general strike that began in February 2002 and culminated with

the still-disputed events of April 8-14, 2002, when Chavez was removed from office and

subsequently restored to power (Nelson, 2009). On April 8, Chavez announced on television that

several of PDVSA's top executives were to be immediately discharged from their posts. They

were to be replaced with officials friendly to the regime (Nelson, 2009).

The next day, the country's largest labor union (Confederaci6n de Trabajadores de

Venezuela, or CTV) and chamber of commerce (Fedecdmeras) joined forces with opposition

political parties to hold a protest march that would end at the PDVSA headquarters. The

marchers, almost a million Venezuelans, then continued marching to Miraflores (Nelson, 2009).

Chavez supporters and elected officials, meanwhile, had organized a counter-protest that blocked

the path of the marchers. As the two groups neared, the "national guardsmen and pro-Chavez

thugs clashed with the protesters," blocking side streets and escape routes so that the marchers

would be forced to continue on Avenida Baralt (Tarver & Frederick, 2006: 152; Nelson, 2009:

261). From an overpass known as Puente Llaguno that overlooks the Avenida Baralt march

route, Chavez's supporters fired shot after shot at the unarmed protesters, killing more than a

dozen (Nelson, 2009).

Instead of allowing the nation's private television channels to cover the massacre of the

civilians, Chavez began a lengthy speech in order to control the airwaves and prevent the public

from finding out about the unfolding events (Tarver & Frederick, 2006). Under Venezuelan law,









all national television stations are required to interrupt their programming whenever the

executive wishes to speak to the nation; these broadcasts are termed cadenas (chains) because

the video feed originates with the Venezolana de Televisi6n (VTV) state network and passed on

to the private channels.

Inside Miraflores and surrounded by the protesters, Chavez ordered the military high

command to initiate the top-secret Plan Avila, the same plan of action that the military used to

kill thousands of civilians during the Caracazo (Nelson, 2009: 52-53). The generals refused to

comply (Nelson, 2009: 121-132). As the evening wore on, the country's labor and business

leaders condemned the actions of Chavez (Nelson, 2009: 132). The military commanders soon

followed: dozens of high-ranking officials announced on national television that "they refused to

recognize Chavez as the legitimate ruler" of the country because "the rights of the people as

outlined in the constitution had been grossly violated" (Nelson, 2009: 133).

According to researcher Brian Nelson (2009: 154-155), several generals were able to

convince Chavez to resign and accept safe passage to Cuba, an event that Chavez supporters now

dispute. In the early morning of April 12, Chavez was taken to Fort Tiuna by General Manuel

Rosendo (Nelson, 2009: 158). Pedro Carmona, the president of Fedecamaras, was announced as

the interim president (Nelson, 2009: 158). Yet, Carmona's term in office lasted less than two

days. He lost the support of the CTV labor union when he went behind the back of its president,

Carlos Ortega, to negotiate with other business leaders (Nelson, 2009: 160-161). The military's

support, meanwhile, quickly evaporated when Carmona and his Attorney General appointee,

Daniel Romero, announced that they were dissolving the National Assembly and the National

Electoral Council, dismissing the Supreme Court, and annulling the Enabling Laws and the 1999

Constitution (Nelson, 2009: 196-197).









As Chavez supporters took to the streets to protest, General Efrain Vasquez Velasco, the

head of the army, appeared on Globovisi6n and listed twelve demands for Carmona, including

the "restoration of the National Assembly" and respect for the country's institutions, constitution,

and elected individuals (Nelson, 2009: 225). Sensing that the tide had turned against him,

Carmona fled from the palace just as the Presidential Honor Guard was retaking it from the coup

leaders (Nelson, 2009: 226). Hours later, Chavez was returned to power by sympathetic members

of the military, and the short-lived coup was over (Nelson, 2009). It does seem somewhat strange

that, as Daniel Hellinger (2009) points out, that the two most significant events in recent

Venezuelan history were failed coups d'etat.

Accusations of U.S. Involvement

Since the failed coup, there have been widespread accusations that the United States had

been actively plotting with Venezuelan opposition leaders to overthrow Chavez since his election

in 1998, and that the CIA was responsible for the coup attempt (Nelson, 2009). Through various

fronts operated from the U.S. Embassy in Caracas, the Bush administration was accused of

spending at least $30 million for the sole purpose of "destabilizing the democratically elected

government of Venezuela" (de la Barra & Dello Buono, 2009: 22).

The United States' position is that it actually warned Chavez over the rumors of the

impending coup days before it occurred (Nelson, 2009: 280). Nelson (2009: 281) agrees with the

position of the U.S. government, saying that the "all-consuming focus on the war on terror has

meant a complete lack of U.S. policy toward Venezuela." The embassy staff in Caracas had been

banned from "all meetings with dissident military officers" in the months before the coup

(Nelson, 2009: 279). It is clear, says Nelson (2009: 282), that the crisis was not "a well

orchestrated conspiracy led by a few shadowy figures," but instead "was a complex and

confusing event that was influenced by dozens of self-serving actors."









A year after the attempted coup, the Venezuelan government opened the Venezuela

Information Office (VIO) in Washington, D.C. in order to swing public opinion in the United

States in favor of the Chavez regime (Forero, 2004). In one twelve-month period, from 2003 to

2004, Chavez's government directed nearly $2 million to the VIO to promote Bolivarian ideals

throughout the United States (Forero, 2004).

Back at Home in Miraflores

Though Chavez was once again the head of state, the opposition further destabilized the

already volatile situation by calling a general strike in December 2002. Faced with a complete

economic shutdown, Chavez instructed the armed forces to seize supermarkets and storehouses

and distribute their contents to the poor (Tarver & Frederick, 2006: 153). He then unilaterally

fired 18,000 PDVSA employees who had supported the strike, accusing them of corruption and

misconduct (Tarver & Frederick, 2006: 153). Although courts ordered the immediate

reinstatement of the dismissed workers, Chavez and PDVSA's new chief executive simply

decided to ignore the court's order (Tarver & Frederick, 2006: 153).

Chavez has created a system of misiones bolivarianas (Bolivarian missions) that have the

stated goal of eliminating poverty and illiteracy, but opposition advocates claim that they are

actually "underhanded means of spreading socialism" (Tarver & Frederick, 2006: 154). Each of

the constantly expanding missions has a specific purpose. For example, Misi6n Barrio Adentro

provides healthcare to impoverished areas; its clinics are staffed with doctors that the Cuban

government sends in return for oil. Misi6n Mercal has created a system of small socialist markets

that enable the poor to purchase a limited selection of foods at prices heavily subsidized by the

government. Misi6n Robinson aims to teach illiterate adults how to read and write. Misi6n

Zamora targets land redistribution, providing government-owned rural land and property seized









from private landowners to the poor in order to reduce the over-urbanization of Caracas,

Maracaibo, and Valencia and increase the domestic food supply.

The missions have won Chavez international acclaim and provided support for the popular

view that he is an empathetic ruler who deeply cares about those mired in poverty, though

Francisco Rodriguez, who served as chief economist of the National Assembly until 2004,

claims (2008: 50) that the "'Chavez is good for the poor' hypothesis is inconsistent with the

facts." Cristina Marcano and Alberto Barrera Tyszka (2007), meanwhile, believe that the

missions are simply another method to help Chavez consolidate his power. The presidency fully

controls the purse-strings of the missions, the missions operate without being independently

audited, and participants are given or denied access "according to a system of partisan

affiliations and loyalty to the government" (Marcano & Barrera Tyszka, 2007: 269).

Opinions clearly differ on how well the Chavez government is achieving its goal of

narrowing the income gap between rich and poor. Tariq Ali, a noted British-Pakistani historian

and writer, claims that Chavez's anti-globalization and anti-imperialist leanings are a positive

force, one that has been the target of"a massive disinformation campaign" engineered by The

Economist and the Financial Times (Ali, 2006). What Chavez really wants, writes Ali, is only

"to make modest changes to the country's social structure," by using revenues from the sale of oil

to fund Bolivarian missions that bring about positive gains for Venezuela's most impoverished

citizens in the areas of health, education, and housing (Ali, 2006). The Bolivarian government

has thus, according to Ali, taken care to "slowly and cautiously implement social-democratic

reforms, reminiscent of Roosevelt's New Deal and the policies of the 1945 Labour government,"

though these efforts at reform were unacceptable "in a world dominated by the Washington

consensus" (Ali, 2006).









Despite economic troubles, defections from key allies, and rebukes from international

organizations like Amnesty International, Human Rights Watch, Reporters Sans Frontieres, and

Socialist International, Hugo Chavez has managed to remain in power for more than eleven

years, enough time to become one of Latin America's leading voices on the world stage.

Although Chavez pledged a week before his 1998 election that he would spend only one

five-year term in power, he has since been reelected twice (in 2000 and 2006) and survived a

2004 recall referendum whose results were questioned in the international community.










CHAPTER 3
THE BUSINESS ENVIRONMENT UNDER CHAVEZ

Overview

Four factors have precipitated the exodus of the business community from Venezuela

during the Chavez era: rising levels of crime and violence, the consolidation of power in the

executive branch at the expense of the opposition, fears that the national government would

expropriate private businesses and seize private property, and the introduction of economic

policies that engendered inflation and hampered the ability of firms to freely engage in

commerce. The Venezuelan economy under Chavez has been marked by volatility despite a

decade-long upward trend in the price of crude oil.

The spot price of a barrel of Venezuelan Tia Juana crude oil rose 1437% during the first

decade of Chavez's presidency, from an average of $8.98 per barrel during the week of the 1998

presidential election to its peak average of $137.98 per barrel in July 2008. Oil prices then turned

sharply negative in the midst of the worldwide economic downturn, but have since rebounded to

nearly $80 per barrel as of March 2010 (U.S. Energy Information Administration, 2010) (Figure

3-1). The persistently high prices enabled Chavez to lavishly spend revenues received from the

sale of oil on a wide array of domestic social missions, as well as on international projects in

order to gain influence on the world stage.

The volatility across the economic, social, and political spectra have served to prevent the

development and expansion of a business sector independent of the mammoth petroleum

industry, except for a few isolated success stories that include the development of a nascent

shrimp industry that exports over 95% of its production to the United States and Europe

(Penfold, 2007). More than seven thousand private companies closed in Venezuela between 1998

and 2004 (Oppenheimer, 2007: 236), coinciding with a fall in private investment to only 6% of









GDP (Penfold, 2007). Many of those firms failed to diversify risk, which they could have done

by focusing on exports and cross-border operations with nearby countries (Penfold, 2007). Other

firms that remained open did so by integrating their activities with the oil and gas sector and

expanding ties with the Chavez government (Penfold, 2007).

Crime and Violence

Despite its long-standing reputation as the South American continent's bastion of

democratic and peaceful rule, Venezuela has become an increasingly violent society. Roberto

Bricefio-Le6n (2009: 20) has classified the countries of Latin America based on how their

murder rates compare with the 2002 world average of 8.8 homicides per 100,000 inhabitants.

Argentina, Chile, Costa Rica, Uruguay, and Paraguay have homicide rates below the world

average and are classified as "low violence" countries. Peru, Nicaragua, Ecuador, the Dominican

Republic, and Panama comprise the "medium violence" countries, with homicide rates up to

double the world average. Brazil and Mexico are categorized as "high violence" as the two

countries in the region with a homicide rate more than double but less than triple the world

average. Venezuela, along with Colombia, Honduras, and El Salvador, is classified as a country

with "very high violence."

The situation has deteriorated to the extent that more violent crime takes place in

Venezuela than Colombia, despite Colombia's ongoing armed conflict and the presence of the

Fuerzas Armadas Revolucionarias de Colombia Ejercito del Pueblo (Revolutionary Armed

Forces of Colombia People's Army, or FARC-EP), the Ejercito de Liberaci6n Nacional

(National Liberation Army, or ELN), and organized paramilitary groups (Bricefio-Le6n, 2009).

Fear of crime accordingly is the main worry throughout the country. In fact, every survey

conducted in Venezuela during 2008 concluded that Venezuelans believed that insecurity was

the principal problem affecting the country's residents (Bricefio-Le6n, 2009).









Steadily Increasing Crime Rates since 1999

In 2007, there were 49 homicides per 100,000 residents in Venezuela, meaning that its

citizens were murdered at a rate approximately 6 times the world average (Bricefio-Le6n, 2009:

20-21). Though there was a marked increase in number of homicides from 1987 to 1993, when

the rate increased from 8 to 21 murders per 100,000 Venezuelans, the rate stabilized between 19

and 22 homicides per 100,000 persons during the period from 1993 to 1998 (Bricefio-Le6n,

2009: 31). Since Chavez took office, however, the rate has skyrocketed even during years with

high levels of economic growth (Figure 3-2). The homicide rate per hundred thousand

inhabitants nearly doubled (from 20 to 38) during the first four years of Chavez's presidency

alone (Bricefio-Le6n, 2009: 31).

Between 1998, when Chavez was running for office, and 2007, the number of homicides

in the country more than tripled, increasing from 4,550 to 13,157 according to statistics that may

underestimate the actual figures; in some cases, violent crimes such as homicides are never

reported to the authorities (Bricefio-Le6n, 2009: 27-28). Meanwhile, nearly every other country

in Latin America either experienced a decrease in the homicide rate or saw its rate remain steady

over the course of the preceding decade. Only in Guatemala and El Salvador were there also

significant increases in the numbers of homicides per 100,000 residents.

Lack of Coexistence in a Polarized Society

Bricefio-Le6n (2009: 30) partially blames the violent crime problem on the ongoing

political crisis and the resulting "important breaking-off of citizen coexistence" under the Chavez

regime, but he also asks rhetorically:

What other difference can we find in the politics and the social and economic
situation of Brazil, Mexico and Venezuela? Better yet, if we were to concentrate on
a classic crime explanation that would link homicides, violence and crime to the
material social conditions and were to additionally accept as true the official data
that affirm that in Venezuela poverty and inequality have been reduced, that









unemployment has been reduced and that the population's incomes, consumption,
and attention to the poor in terms of health and education have increased, why,
then, in Venezuela has violence and crime increased when it should have
decreased? (Bricefio-Le6n, 2009: 30)

Bricefio-Le6n (2009) claims that the government has paid little to no attention to the

problem of violent crime, and instead has provoked more acts of violence by engaging in

populist rhetoric that blames the middle and upper classes for the country's problems. Chavez

has supported and developed this social polarization between the chavistas (his supporters) and

the escudlidos (Chavez's term for the opposition; lit. 'squalids'). The two blanket groups hold

radically different views on society, the meaning of democracy, and politics (Villarroel, 2009).

Despite the countless hours that Chavez spent hosting his weekly television program A16

President and initiating hundreds of cadenas (chained broadcasts that are required by law to

supersede all other television and radio programming in the country), during his first decade in

office the president referred to violence and crime only a few fleeting times; in those instance, he

only did so to "make comparisons with Cuba where, in his opinion, there is no crime because

there is not the aspiration that foments capitalism" (Bricefio-Le6n, 2009: 31). Less than 3 in 10

Venezuelans approved of how the government is confronting the problem of insecurity and

violence, and 54.6% hold little or no confidence in the ability of Chavez to resolve the

atmosphere of insecurity (Bricefio-Le6n et al., 2009c: 171).

Meanwhile, acts of violent crime have been deemed acceptable and heroic by Chavez

himself. The president has hailed the April 11, 2002, shooters on Puente Llaguno as heroes by

building a monument to commemorate them, and his failed coup d'etat of February 4, 1992, that

left scores of civilians and military members dead is celebrated as a national holiday with

parades, speeches, and celebrations. Chavez even went as far as to proclaim that it was

acceptable for poor Venezuelans to rob and steal if they were hungry (Bricefio-Le6n, 2009: 32).









A 2008 survey conducted by the Venezuelan Observatory of Violence revealed that 53% of the

population felt that the president's language encouraged the climate of violence and insecurity in

the country, while only 18.1% feel that his discourse corresponded to how a head of state should

behave (Bricefio-Le6n, 2009: 34).

Leopoldo L6pez, the former mayor of the Chacao municipality located in eastern

Caracas, has expressed his view that violent crime in Venezuela is a human rights issue of grave

concern, because such crime violates the most fundamental right of human beings -- the right to

live a free and full life (L6pez, 2009). Nevertheless, 93% of murders go unsolved in Venezuela

and criminals are free to roam the streets with impunity (L6pez, 2009).

Effect on the Business Environment

The problem of crime in the largest cities of the country has significantly transformed the

Venezuelan way of life. Residents have ended evening get-togethers earlier, changed modes of

transportation, and avoided certain zones altogether (Monteferrante, 2003). Seventy-nine percent

of Venezuelans fear being attacked or robbed in their own home, 80.3% are fearful of being

attacked or robbed while walking on the streets of their neighborhood during daytime hours,

91.5% fear being attacked or robbed while using modes of public and private transport, and

92.2% fear being attacked or robbed in other parts of the city (Bricefio-Le6n, Avila & Camardiel,

2009a: 133, 137). Fear has truly "become a condition of daily life" for the Venezuelan populace

(Bricefio-Le6n et al., 2009a: 130).

As levels of fear have increased in step with rates of violent crime, Venezuelans have

sought to avoid becoming victims of crime by spending less time in public places, thereby

causing a noticeable effect on the economy (Bricefio-Le6n et al., 2009b). In addition to

eschewing outings to restaurants, movie theaters, and parks, residents are spending less time

interacting with their neighbors, civic networks, and the greater community (Bricefio-Le6n et al.,









2009b). Over 63% of the population has reduced the number of hours it spends shopping while

43.8% have reduced their working hours in order to avoid being outdoors during the nighttime

hours, when the risk of crime victimization is thought to increase (Bricefio-Le6n et al., 2009b:

141). Reductions in hours worked represent both a loss of wages for the employee and a loss of

production for the employer.

Business owners have been forced to devote a significant percentage of revenue to the

protection of their company as the likelihood of being a victim of a burglary, robbery, or other

property crime has increased. A 2001 study of 200 private firms, 58% of which were classified

as small- or medium-sized businesses, by the National Council for Investment Promotion

(CONAPRI) found that 89% of the surveyed businesses used an average of 5% of their gross

sales to provide security (Penfold, 2002: 33). Some even paid vacunas (slang for bribes; literally

vaccines) to groups of criminals or the police. Fifty-six percent of businesses reported that they

had lost an amount equivalent to 3% of gross sales due to vandalism, assault, robbery, arson, or

other general delinquency (Penfold, 2002: 33). Forty percent reported no lost sales, though this

figure included many establishments that were the victims of crime but received compensation

from their private insurance providers (Penfold, 2002: 33). Half of all business owners and

nearly 75% of small and medium enterprises never reported any crime to the police (Penfold,

2002: 34). Those business owners that did gained little by calling the police: only 7% of the

incidents were resolved (Penfold, 2002: 34).

In a survey published in 2002, entrepreneurs cited the ubiquity of criminal behavior as a

primary factor that makes doing business in Venezuela extremely difficult. On a scale of 1 to 5,

with 1 signifying that the factor did not complicate business operations at all and 5 signifying

that the factor made business much more problematic, the business owners assigned an average









score of 4.3 to crime, robbery, and disorder (Penfold, 2002: 32). The rampant crime that takes

place throughout Venezuela's cities has a real effect on the entrepreneurial class. In this

situation, all but the burgeoning sector of private security companies are harmed.

Concentration of Power

The Venezuelan Constitution of 1999 immediately altered the political landscape of the

country by enabling the Chavez to use his political capital to create and transform institutions

that would give his the president and his MVR supporters to consolidate control over the state

and the economy (Oppenheimer, 2007). In subsequent years, Chavez consolidated his control

over the state through both constitutional and unconstitutional means.

Judicial Involvement in the 2002 and 2004 Crises

Adherence to the norms of judicial independence set forth by the United Nations has

gradually evaporated during Chavez's tenure. The 1999 Constitution created a new 20-member

Supreme Tribunal of Justice (TSJ) selected by the Constituent Assembly. The court system to be

replaced had been extremely corrupt, like other pre-Chivez Venezuelan governmental

institutions; in 1998 only 0.8% expressed confidence in the ability and impartiality of the

judiciary (Human Rights Watch, 2008: 41). Thus, the idea of a new court won the overwhelming

backing of all socioeconomic groups (Human Rights Watch, 2008).

Until 2004, the Supreme Tribunal was widely regarded as polarized and split between

government loyalists and opposition members. Its justices returned key decisions in both the

aftermath of the 2002 crisis and the lead-up to the 2004 recall referendum. In August 2002, the

court decided to the indignation of Chavez that there was not enough evidence to try Generals

Efrain Vasquez Velasco, Pedro Pereira Olivares, Hector Ramirez Perez, and Daniel Lino Jose

Comisso Urdaneta for their alleged participation in the coup that April. Two years later, the

five-member electoral chamber of the TSJ overturned the National Electoral Council's (CNE)









ruling that the recall referendum could not take place because 32.3% of the recall petition's

2,708,510 signatures were invalid (Human Rights Watch, 2008: 44). However, the

Chavista-majority constitutional chamber of the TSJ then overturned the electoral chamber's

ruling, forcing the opposition to quickly solicit hundreds of thousands of new signatures before

the effort to recall Chavez could move forward (Human Rights Watch, 2008: 45).

The Implementation of the Organic Law

In response to the lack of unquestioned support Chavez in the TSJ, in May 2004 the

National Assembly passed the Organic Law of the Supreme Tribunal of Justice (LOTSJ). The

new law packed the court with 12 new justices that could be approved with a simple majority in

the National Assembly; the existing 20 justices had to have been selected by two-thirds of the

AN. The Organic Law also allowed for the appointments of justices to be "nullified" by a simple

majority of the AN if they are determined subjectively to have undermined the court's prestige or

operation, thus bypassing the Constitution's requirement that justices can only be impeached

with a two-thirds majority vote in the National Assembly (Human Rights Watch, 2008: 47-48).

The Organic Law placed the judiciary at the behest of the executive and the legislature,

essentially eroding the judicial branch's independence and ability to check and balance the other

branches of government. The author of the anti-Chavez ruling concerning the 2002 coup d' tat

was removed by simple majority within a month, and the electoral chamber justices who had

ruled against the CNE soon "requested their retirement in order to avoid the consequences of the

sanction" that would be administered by the National Assembly (Human Rights Watch, 2008:

52). The twelve new seats and five vacancies were filled carefully with Chavez-friendly judges,

leading congressman Pedro Carrefio to happily exclaim that "in the list of potential candidates

there is no one who will act against us" (Human Rights Watch, 2008: 53).









Control over the courts did not stop at the national level. By law, six members of the TSJ

comprise a Judicial Commission that is responsible for appointing and dismissing lower-level

judges. The man appointed as chairman of the commission, Luis Velazquez Alvaray, was a

United Socialist Party of Venezuela (PSUV) congressman recently appointed by his colleagues

in the AN as one of the new TSJ justices. The commission dismissed over 400 of the country's

1732 judges, substituting them in the process with regime-friendly replacements (Human Rights

Watch, 2008: 54). Just over a year later, Velazquez Alvaray was accused of mismanaging

millions of dollars in government funds and suspended (The Economist, 2006). Velazquez

Alvaray responded by accusing military intelligence of being controlled by drug traffickers and

saying that the "Palace of Justice should be blown up" because of the rampant corruption (The

Economist, 2006).

Political Discrimination as Government Policy

Although the Venezuelan Constitution of 1999 prohibits political discrimination,

opponents of Chavez have been blacklisted, sometimes officially, and thereby unable to compete

for and win government contracts for their businesses (Human Rights Watch, 2008). In 2003,

many Venezuelans opposed to Chavez signed a petition to hold a recall referendum via the

process set out in the 1999 Constitution. Immediately, Chavez declared that signatories of the

petition would be held accountable for their actions; in his view they were committing treason by

"signing against the country," rather than Chavez personally (Human Rights Watch, 2008: 17). It

is important to note, however, that signing the recall petition did not signify that the individual

was opposed to Chavez; some supporters signed the petition in order to be able to prove via the

referendum that support for Chavez was still strong. In early 2004, Chavez ordered the president

of the CNE to turn over the petition forms to Luis Tasc6n, who was serving both in the National









Assembly and as Chavez's campaign manager, supposedly to check for falsified signatures

(Human Rights Watch, 2008: 17).

The Lista Tasc6n (Tasc6n list) was then posted online by the congressman, where it

remained for months despite affirmations from government ministers and the president of

PDVSA that they were using the list to determine which employees to hire and which should be

fired from their posts (Human Rights Watch, 2008: 30-31). A former employee of the

government agency Fund for Microfinance Development (FONDEMI) revealed to Human

Rights Watch (2008: 28) that she had been instructed by her superiors to use the Tasc6n list to

deny loans for small businesses whose owners had signed the recall petition. Similarly, a small

cooperative in Nueva Esparta state that had produced school uniforms for the Single Social Fund

(FUS) was released from its contract with the government because such contracts could not be

awarded to undeserving businesses "that have shown their willingness to remove the top leader

of the Bolivarian revolution, our President Hugo Rafael Chavez Frias" (Human Rights Watch,

2008: 28).

In April 2004, Tasc6n himself told the state's main radio network, Radio Nacional de

Venezuela, that he had realized that the list was being used by government officials as a

discriminatory tool and had informed Chavez that action should be taken to prevent such use.

Chavez did not comment on the issue until April 2005, well after the recall referendum, when he

stated that the "famous list certainly fulfilled a useful role" during the campaign (Human Rights

Watch, 2008: 18).

A more technologically advanced descendent of the Tasc6n list soon surfaced during the

2005 legislative election season. Government loyalists had created a searchable database of all of

the country's registered voters. The software enabled government officials to quickly determine









whether the citizen had, for example, voted in previous elections, participated in the recall

efforts, or signed a related counter-recall petition. The portability and convenience of the

software program enabled it to spread rapidly throughout the myriad government agencies, even

at the state and local levels. Nonpartisan NGOs claimed that functionaries then used the

information to deny contracts and services to business owners who supported the opposition

(Human Rights Watch, 2008).

Silencing Critics

The government of Hugo Chavez has asserted its will against both media outlets and

individuals hostile to the regime. Although by all accounts the country's leading media outlets

were sympathetic to Chavez during his election campaign, they soon turned hostile to the

Bolivarian government. In order to prevent the views of the opposition from reaching the

Venezuelan people during elections seasons, Chavez has taken the same step he did during the

April 2002 crisis: rely on the power of the cadena (Oppenheimer, 2007). In 2003 and 2004

alone, Chavez called a total of 294 cadenas, many of which ate up regularly scheduled radio and

television programming for hours (Oppenheimer, 2007: 242).

Gustavo Cisneros, Venezuela's richest citizen and the owner of the popular Venevisi6n

television network, was one of Chavez's earliest and most ardent supporters. Alberto Muller

Rojas, a retired general who broke with Chavez in 2010, confirmed that Cisneros directly

provided Chavez with cash in addition to the benefits he reaped from extended free airtime

during the 1998 campaign (Marcano & Barrera Tyszka, 2007). However, a disagreement

between Cisneros and Chavez over the National Telecommunications Commission caused the

two to split, and Venevisi6n joined with the other national networks to support the opposition

throughout the 2002 coup (Marcano & Barrera Tyszka, 2007).









Though Chavez proclaimed in early 2004 that Cisneros was a capo actively conspiring

against the Bolivarian government, a subsequent meeting with Chavez brokered by former U.S.

president Jimmy Carter encouraged Cisneros to avoid arrest by moving his family abroad and

agreeing that Venevisi6n would self-censor itself (Marcano & Barrera Tyszka, 2007: 19; Faria,

2008: 532). During the 2006 election cycle, analysis of Venevisi6n's programming revealed that

it had devoted 84% of its election coverage to Chavez and PSUV, the umbrella party that

resulted from the merger of MVR and the other Chavista parties (Romero, 2007). In contrast,

opposition candidate Manuel Rosales received only 16% of the network's coverage (Romero,

2007).

In 2007, the government revoked the broadcasting license of Radio Caracas de Televisi6n

(RCTV), thereby violating the terms of freedom of speech guaranteed by the Venezuelan

Constitution of 1999 (Faria, 2008: 531) RCTV, the country's oldest and most-watched

broadcasting network, was shut down because of its role in the 2002 coup, when it devoted only

half of the screen to the government cadena while simultaneously broadcasting the violence

spreading throughout downtown Caracas on the other half of the split-screen (Nelson, 2009: 73;

Human Rights Watch, 2008: 67). Perhaps not coincidentally, the network had earlier accused the

government of violating the civil rights of the Venezuelan people (Faria, 2008: 531). RCTV

simply moved to a cable-only broadcasting format, but in January 2010 the network was again

shut down, for refusing to interrupt its programming to broadcast one of Chavez's cadenas, as

was required by law. Because of governmental hostility and regulations, Reporters Without

Borders (2009) placed Venezuela 124h in the world in its annual Freedom of the Press rankings.

The Bolivarian government has taken action on numerous occasions against political

opponents, either by categorizing them as traitors, by accusing them of minor corruption-related









crimes to make them politically ineligible, or by imprisoning them. Raul Baduel, a general who

played a crucial role in restoring Chavez to the presidency in April 2002 (Nelson, 2009), was

arrested less than a year after opposing the proposed 2007 constitutional reforms and distancing

himself from the Chavez camp (Baduel, 2007) on charges of misappropriating funds. He

continues to be held without trial (Human Rights Watch, 2010).

Also targeted by Chavez was Francisco Us6n, a general who broke with Chavez on April

11, 2002, when Chavez ordered the activation of Plan Avila (Human Rights Foundation, 2007).

Us6n, a trained military engineer, was arrested in 2004 for slander for responding to "technical

questions about how a flamethrower operates" (Human Rights Foundation, 2007) in a televised

interview after a fire in a punishment cell at a military facility killed two soldiers and severely

burned six more. General Us6n, who was sentenced to five-and-a-half years in prison, is

identified as a political prisoner and prisoner of conscience by the Human Rights Foundation

(2007).

Oswaldo Alvarez Paz, the 1993 presidential candidate of COPEI, was arrested and

imprisoned in March 2010 after stating in an interview that Venezuela was becoming a haven for

drug traffickers, a fact that was previously confirmed in reports by several international

organizations (de C6rdoba & Molinski, 2010). Each charge of conspiracy faced by Alvarez Paz

carries a maximum sentence of 16 years (Crowe & Lunhow, 2010). Days later, the arrest of

Guillermo Zuloaga, the head of television network Globovisi6n, was ordered by pro-Chivez

attorney general Luisa Ortega, who accused him of "spreading false information" about

Venezuela in a speech to the Inter-American Press Association (Crowe & Lunhow, 2010).

Ironically, the comments that prompted the arrest were: "It's impossible to talk about media









freedom in a country where the government uses force to close media" (Crowe & Lunhow,

2010).

Additionally, in 2008 Chavez's auditor general banned hundreds of politicians from

seeking office due to charges of alleged corruption, though nobody was convicted (The

Economist, 2008). The bans were said to be targeting Leopoldo L6pez, the popular young

opposition mayor of Chacao who could have posed a threat to Chavez in the 2012 presidential

elections (The Economist, 2008). L6pez, who at the time of the ban held a thirty-point lead over

the Chavez-backed contender for the Caracas mayoral race, was forced to abandon his political

ambitions (Diehl, 2008).

During the 2004 recall referendum, the pro-Chavez electoral authorities were accused of

preventing expatriate Venezuelans from voting by any means necessary. In Miami, there were

50,000 registered Venezuelan voters. Those who came to vote at the consulate on Brickell

Avenue were turned away after hours of waiting outside the office building, for the reason that

the elevators were out of order (Oppenheimer, 2007: 242).

By 2007, Chavez's cult of personality had expanded so much that he claimed that his

opponents could not prevent him from being reelected indefinitely, as mandated by the 1999

Venezuelan constitution that Chavez himself created, saying "this is a revolution and we came to

stay; you cannot replace Picasso while he is painting the Guernica" (Primera, 2008). One year

later, Chavez channeled Louis XIV as he stated succinctly in response to accusations that he was

an autocrat: "Yoya no soyyo. Yo soy elpueblo" (Primera, 2008). Or, in the words of the Sun

King, "L 'tat, c 'est moi. "

Effect on the Business Environment

One hundred fifty-six of the legislative body's 167 seats were held as of 2009 by the

PSUV and its allies; the remaining eleven seats were held by the dissident leftist parties For









Social Democracy (PODEMOS) and the Populist Humanist Front. The AN has not asserted its

independence from the executive branch in recent years, and has even granted Chavez the ability

to create laws by decree for extended periods of time, thereby completely circumventing the

entire legislative branch of the national government. The subservience of both the legislative and

judicial branches of government to the executive sharply undermines confidence in the stability

of the economy.

Expropriations

Nationalization of Private Firms

Though Chavez repeatedly stated that he would not confiscate the assets of private

enterprises (Sylvia & Danopoulos, 2003: 69), he has certainly done so since being elected.

Furthermore, to compete with the private sector he has ordered the creation of new

government-owned enterprises such as Conviasa, an airline created in 2004 by an executive

order (Faria, 2008: 526). From its hub at Simon Bolivar International Airport in Maiquetia,

Conviasa operates flights to over a dozen domestic airports as well as Tehran (Iran) and

Damascus (Syria).

The aftermath of Chavez's reelection in December 2006 immediately took on a similar

tone to the post script of the president's previous electoral triumphs. After the 2004 defeat of the

recall movement, for example, Chavez had announced for the first time at the World Social

Forum in Porto Alegre that he was building "Socialism for the 21st Century" (Contreras, 2007).

During 2007, the Chavez government nationalized CANTV, a telecommunications firm, for

$1.3 billion; energy suppliers Electricidad de Caracas and CMS Energy for a total of $1 billion;

and the local operations of joint-oil ventures with BP, Chevron-Texaco, ConocoPhillips, ENI,

Exxon-Mobil, Statoil, and Total for $6.7 billion (The Economist, 2008).









Following the defeat of the constitutional referendum at the ballot box in December 2007,

Chavez temporarily took on a more moderate tone by appearing to heed the populace's

disapproval of proposed intelligence gathering and educational curriculum laws. To gain back

some of the lost confidence of the business community, Chavez pledged that no more

nationalizations of private enterprises would take place (The Economist, 2008).

Yet, as The Economist (2008) reported months later, "with Mr Chavez moderation rarely

lasts, and he has now veered left again," by nationalizing firms across a wide array of industries,

giving the government a further foothold in construction, manufacturing, and agriculture. In

March 2008 the government nationalized the country's largest producer of dairy products,

Lacteos Los Andes, for $200 million, as well as Cealco, a manufacturer of freezers and

refrigerators, for an undisclosed sum. In April, Chavez ordered the immediate nationalization of

the local operations of Cemex (Mexico), Holcim (Switzerland), and Lafarge (French), three

giants of the cement industry. The trend of nationalization continued in May, when steel

manufacturer Siderfirgica de Orinoco C.A. (SIDOR) was reincorporated into the public sphere

for the sum of $1.7 billion only 11 years after being privatized by the government of Rafael

Caldera (The Economist, 2008).

The banking industry was to be the next target. In July 2008, the Bolivarian government

took control of Venezuela's third-largest bank (though with compensation as well the express

approval of the bank's ownership), Banco de Venezuela, a subsidiary of the Spanish-owned

Banco Santander conglomerate. Following the nationalization of the bank, a professor at Instituto

de Estudios Superiores de Administraci6n (IESA), one of South America's leading business

schools, gloomily predicted "I don't think this will be the last bank to end up in state hands, and

it's going to be happening in other sectors too" (Gustavo Garcia, in The Economist, 2008).









In December 2009, the Chavez government expropriated seven private banks. Chavez then

threatened further nationalizations in the banking sector: "You want me to nationalize the banks?

I have no problem with that because the banks don't want to extend credit to the poor" (Bandell,

2009). Banking regulations, some of which have been imposed by presidential decree, have

further limited the outlook for Venezuelan private enterprise by setting interest rates and

requiring that at least half of the loans made by banks that remain in private hands are directed

toward government-designated industries and projects at reduced rates (The Economist, 2008).

The most recent targets of the Chavez administration have been firms in the food and

beverage industry. In March 2009 the government expropriated the lone rice mill of Cargill, a

corporation based in the United States, as punishment for selling rice for prices above the fixed

price ceiling, though Cargill claimed it was selling a type of rice whose price was not regulated

by Venezuelan law (Rondon, 2009). Two months later, the government seized Cargill's pasta

factory for failing to meet the government-imposed production quota (Daniel, 2009). Polar, the

nation's largest producer of foodstuffs and beer, has repeatedly been targeted. Various plants and

warehouses operated by Polar and its subsidiaries have been seized by the national and

pro-Chavez local governments since 2005 (Ixer, 2005; Rondon, 2009; Crowe, 2010). During the

first two months of 2010 the government took possession of the Exito and Cada supermarket

chains, both of which had been owned by Groupe Casino, a French multinational corporation.

The stores have been renamed Bicentenario, in honor of Venezuela's bicentennial celebrations

(Smith, 2010).

Confiscation of Private Property

As part of the Bolivarian missions project, Chavez proposed the creation of Misi6n

Zamora to facilitate the de-urbanization of Venezuela's largest cities and the creation of

self-sustainable agricultural collectives. In 2001, after being granted the right to rule by decree,









Chavez announced the Ley de Tierras y Desarrollo Agrario (LTDA; Law of Land and Agrarian

Development) that expanded on agrarian reforms previously undertaken under the governments

of AD's R6mulo Betancourt and Carlos Andres Perez. The law outlawed the existence of the

latifundio, defined as any farm covering an area of more than 5,000 hectares (Marcano & Barrera

Tyszka, 2007). Nevertheless, there were only about 900 such farms among Venezuela's 350,000

to 500,000 units of production at the time of the decree (Marcano & Barrera Tyszka, 2007: 147).

More controversially, though, were other provisions inserted into the LTDA. The law

raised property taxes considerably; some of the revenues would be directed to the missions.

Additionally, the state would direct how each private farm would use its resources. If central

planning officials wanted more rice to be produced, for example, they could conceivably order

livestock farms to sell off their animals and begin cultivating rice (Marcano & Barrera Tyszka,

2007: 146-147). This, Chavez proclaimed, would "subordinate the possession of land to

productivity and national interest with the goal of achieving high levels of agroalimentary

self-sufficiency" (Marcano & Barrera Tyszka, 2007: 146).

Effect on the Business Environment

The constant threat of having one's life work expropriated without recourse at the whim

of a single individual cannot engender confidence in the environment for business, regardless of

the growth opportunities that the country may provide. Restrictions on the freedom to set prices

and the freedom to choose which goods to produce further harm the private sector, which is

already beleaguered from having to compete for market share with the government's heavily

subsidized products.

Economic Policy

Chavez inherited in 1999 an economy beset by failed policies of previous administrations

and low oil prices as a result of increasing production throughout the world. Even in the OPEC









cartel, member states were surreptitiously disregarding production quotas that were previously

agreed upon (Marcano & Barrera Tyszka, 2007). After inviting the OPEC leaders to a conference

that was held in Caracas in 2000, Chavez was able to gain assurances from the OPEC leaders

that they would abide by new production quotas, so that the limited supply of oil would ensure

higher oil prices worldwide (Marcano & Barrera Tyszka, 2007: 165). Double-digit growth rates

spurred by the rapid increase in the price of oil between 2004 and 2006 slowed in 2007 and 2008

and turned negative by 2009 as commodity prices decreased during the global economic

downturn (Rodriguez, 2008; ECLAC, 2009).

Though the introduction of the missions has brought about the internationally accepted

view that poverty is being reduced, Venezuelan economist Francisco Rodriguez (2008) claims

that there is no evidence that Chavez's policies are helping the poor. Instead, Venezuela's Gini

coefficient actually increased from 0.44 to 0.48 in the six years since Chavez took office,

meaning that the income gap between rich and poor has grown wider (Rodriguez, 2008: 53).

Government spending ballooned from 18.8% of GDP in 1999 to 29.4% of GDP in 2004 as

Chavez distributed more than 150 dollars monthly to the unemployed and other low-income

Venezuelans in advance of the recall referendum (Oppenheimer, 2007: 246; Rodriguez, 2008:

51). A 2007 survey revealed that only 22% of Venezuelans believe that Chavez has reduced

poverty, while half believe that his policies have made it worse (Rodriguez, 2008: 56)

Despite the expansion of government sector jobs, urban unemployment has increased

throughout Chavez's tenure in office, in part because more than 7,000 private firms have closed

(Oppenheimer, 2007: 236). Additionally, official government human development statistics

revealed some worrying conclusions. Ninety-one of every thousand babies were born

underweight in 2006, compared with only 84 in the year 1999 (Rodriguez, 2008: 53). The









percentage of Venezuelan households without running water increased from 7.2% to 9.4%

during the same timespan, while the percentage of households living in homes with dirt floors

increased from 2.5% to 6.8% (Rodriguez, 2008: 53). Spending on health, education, and housing,

meanwhile, is "lower today [2008] than it was in 1992, the last year in office of the 'neoliberal'

administration of Carlos Andres Perez" (Rodriguez, 2008: 54). Studies undertaken by Rodriguez

and his colleagues at IESA have determined that reductions in infant mortality and illiteracy are

not statistically significant from reductions achieved in previous administrations or countries

throughout the region (Rodriguez, 2008).

Chavez's administration has continually pursued an expansionary monetary policy,

thereby ensuring that high inflation rates would continue to be the norm in Venezuela (Figure

3-3). From 2003 to 2008, real liquidity increased by 218% and real spending increased by 137%

(Rodriguez, 2008: 57). In 2008, Chavez and the Central Bank announced the introduction of the

bolivarfuerte (BsF), a nominally new currency that was actually the same as the old bolivar

(Bs), but with three zeros removed. Instead of being pegged at 2147 Bs per dollar, the new

official rate would be set at 2.147 BsF per dollar. Venezuelans often continue to quote prices in

bolivares; for example, the black market rate would be expressed as 6,500 Bs/dollar, not 6.50

BsF/dollar.

Reimplementation of Capital Controls

High oil prices since the turn of the century have masked the extreme economic volatility

faced by the non-petroleum sector in Venezuela and temporarily turned attention away from the

effects of the government's February 2003 imposition of foreign exchange controls and price

controls (Penfold, 2007). The controls are said to have been implemented in order to conceal

some of the Venezuelan economy's structural issues, namely the lack of international









competitiveness for non-oil Venezuelan goods and the fact that government spending was far

outstripping revenues (Penfold, 2007).

Such controls are not new to Venezuela. R6mulo Betancourt introduced price and

exchange controls in 1960 (Guerra, 2004: 43). A fixed exchange rate was maintained until

February 1983, when Luis Herrera Campins announced a dual-rate fixed exchange on Black

Friday (Guerra, 2004: 43). Though Carlos Andres Perez allowing the bolivar to float upon taking

office in 1989, Rafael Caldera later reintroduced capital controls at the onset of 1994's banking

crisis (Guerra, 2004: 43). The exchange rate regime was switched to a crawling band in 1996,

and Chavez maintained that regime until February 2002, when he instituted a managed float

system that lasted for one year, until the reintroduction of capital controls (Guerra, 2004: 43).

As the legislative elections of September 2010 approached, Chavez announced the

devaluation of the bolivar and the reintroduction of the dual fixed-rate exchange system that

marked the apogee of corruption under COPEI's Luis Herrera Campins and AD's Jaime

Lusinchi during the 1980s. For most purposes the bolivar suffered a devaluation of 100%, from

2.15 bolivaresfuertes (BsF) per dollar to 4.30 BsF per dollar (Lyons & Crowe, 2010). However,

a special exchange rate for imports of "essential items" that include food and medicine, at 2.60

BsF per dollar, was announced (Lyons & Crowe, 2010). By retaining the extremely overvalued

essential items rate, Chavez has ensured that domestic production of staples will continue to

suffer, because despite the high tariff barriers in place it is still cheaper for firms to import foods

at the 2.30 rate than to produce them domestically (Lyons & Crowe, 2010).

The devaluation allows the government to double its local currency intake from the sale

of oil, which occurs in dollars (Oppenheimer, 2010). International observers and members of the

opposition claim that the devaluation is politically motivated, as it will enable the government to









ramp up social spending in advance of September 2010's legislative elections (Oppenheimer,

2010; Lyons & Crowe, 2010). Government officials and some international economists,

however, point to the fact that devaluation will "narrow a growing budget shortfall" and make

Venezuelan exports more competitive (Lyons & Crowe, 2010). Meanwhile, inefficient

entrepreneurs again benefit from reduced competition, as importing goods with government

approval once again become more expensive (Faria, 2008).

A third exchange rate, the parallel rate, represents what Venezuelans pay for a dollar

when they are unable to get authorization from the Comisi6n de Administraci6n de Divisas

(Commission for Currency Administration, or CADIVI) to purchase dollars. At the time of the

devaluation, the black market rate hovered between 6 and 7 BsF per dollar (Lyons & Crowe,

2010).

Reintroduction of Tariffs and Import Quotas

In order to stimulate domestic production, Chavez has built up tariff walls torn down by

previous administrations. Similar to R6mulo Betancourt and Raul Leoni, Chavez has made it

more difficult for Venezuelans to import all types of goods, including food, clothing, and

vehicles, but also high-tech devices and industrial inputs like machinery and spare parts that are

not produced in Venezuela (Faria, 2008). The tariffs, which often exceed 35%, are "abused by

inefficient entrepreneurs in connivance with government officials" (Faria, 2008: 526).

Consequently, the barriers to trade implemented by the Chavez administration are actually

viewed in a positive light by business owners fearful of being harmed by the increased

competition that trade liberalization would bring (Faria, 2008). In addition to protecting

uncompetitive entrepreneurs from international competition, import tariffs and quotas distort the

equilibrium of the market by raising the price and increasing the scarcity of consumer products.









Choosing to Direct Government Spending Abroad

Instead of directing the windfall revenues to benefit the well-being of the Venezuelan

people's economy, Chavez has been generous with Venezuelan government funds, to say the

least, in order to gain support and influence on an international scale. In 2000, Chavez was

accused by Colombian president Andres Pastrana's administration of providing financial support

to the Fuerzas Armadas Revolucionarias de Colombia (Revolutionary Armed Forces of

Colombia, FARC) (Oppenheimer, 2007: 248). Since then, accusations of Chavez's involvement

with the FARC guerrillas have not ceased. In 2009, documents retrieved from a computer of

deceased FARC commander Raul Reyes revealed that Chavez's relations with the FARC dated

to at least 1992, when the guerrilla group provided him with $150,000 for his role in the coup

against Carlos Andres Perez (Lemoine, 2009).

Chavez is also accused of using oil to gain the "political subservience" of countries in the

region (Vargas Llosa, 2006). Hundreds of thousands of barrels are sent by Venezuela to Cuba

and Bolivia each month at little to no cost, and Chavez even provided low-cost heating oil to

inner-city residents in the northeastern United States (Vargas Llosa, 2006; Oppenheimer, 2007).

For this Vargas Llosa (2006) states:

Chavez buys influence through oil. It is a form of blackmail. At OPEC, Chavez
fights for increasing prices, making life hard for poor countries that import oil, and
then offers those very nations oil subsidies they have no choice but to accept. ...
Chavez is denying his nation its wealth from oil, somewhere between $40 billion
and $50 billion a year. ... He sponsors 30 countries, including some in Africa, in
order to buy their vote for a seat at the U.N. Security Council.

In total, Chavez spends more than 10%, or upwards of $4 billion, of the government

budget on foreign expenditures designed to expand his "petrodiplomacy" (Marcano & Barrera

Tyszka, 2007: 223; Vargas Llosa, 2006). These investments "would include donations to social

welfare projects, solidarity-based investments such the purchase of Argentinean debt bonds, the









construction of bridges, the paving of highways, and the injection of capital to develop projects

in foreign countries" (Marcano & Barrera Tyszka, 2007: 223). Meanwhile, as evidenced by the

electrical crisis that arose in Venezuela in 2010, domestic infrastructure continues to suffer from

outdated equipment and technology.

International Competitiveness

Currently, the World Bank (2009) ranks Venezuela 177th out of 183 countries in terms of

the ease of doing business. Only six African nations fare worse; Cuba is unranked. Colombia,

Venezuela's Andean neighbor, is ranked 37t, good enough for first place in Latin America.

Among Latin American nations with similar per capital income levels, Chile is ranked 49th

Mexico is ranked 51st, Panama is ranked 77th, Uruguay is ranked 114t, and Argentina is ranked

118t, 59 places ahead of Venezuela.

The World Bank Doing Business rankings are derived from ten distinct categories:

starting a business, dealing with construction permits, employing workers, registering property,

getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts, and

closing a business (World Bank, 2009). In terms of processes needed to start a small business of

between 10 and 50 employees in Caracas, it was determined that sixteen separate procedures

need to be undertaken. These activities, which include such steps as registering the business at

the Registro Mercantil (local mercantile registry) and undergoing a thorough inspection by the

Labor Inspectorate, take an average of 141 days and 24% of per capital GDP to complete (World

Bank, 2009: 6-7).

The Index of Economic Freedom, a collaborative effort by the Wall Street Journal and

the conservative Heritage Foundation, places Venezuela 174th out of 179 ranked countries in the

2010 edition of its annual rankings (Figure 3-4, Figure 3-5). Only Myanmar, Eritrea, Cuba,









Zimbabwe, North Korea are ranked below Venezuela's cumulative score of 37.1 on a scale of

zero to one hundred, where scores below fifty are indicative of unfree, repressed economies.

Canada's Frasier Institute publishes the Economic Freedom of the World indicators

annually. The latest rankings, covering 141 economies and released in 2009, show Venezuela in

138th place, last in the region and ahead of only Angola, Myanmar, and Zimbabwe. Meanwhile,

in 2009 Venezuela was ranked 113th out of 133 countries in the World Economic Forum's annual

Global Competitiveness Report. Competitiveness is defined in this context as "as the set of

institutions, policies, and factors that determine the level of productivity of a country" (World

Economic Forum, 2009: 4). Twelve separate "pillars" of competitiveness comprise each

country's score. Venezuelan institutions and labor market efficiency are currently classified as

the worst in the world, while goods market efficiency and business sophistication have the

dishonor of being ranked only one rung from the bottom (World Economic Forum, 2009: 324).

Each pillar, meanwhile, is divided into as many as 19 sub-pillars that are also ranked

according to a grading system. These sub-pillars are then classified as either "competitive

advantages" or "competitive disadvantages." Of the 110 total sub-pillars identified in the 2009

report, 104 of the factors are categorized as competitive disadvantages. Seventy-three of those

sub-pillars are ranked below 100t, and 26 are ranked 130t or below. Venezuela is determined to

be one of the two worst countries in the world in terms of property rights, intellectual property

protection, diversion of public funds, judicial independence, favoritism in decisions of

government officials, wastefulness of government spending, burden of government regulation,

efficiency of legal framework in settling disputes, efficiency of legal framework in challenging

regulations, transparency of government policymaking, reliability of police services, agricultural

policy costs, business impact of rules on foreign direct investment, burden of customs









procedures, degree of customer orientation, cooperation in labor-employee relations, hiring and

firing practices, restriction of capital flows, local supplier quantity, state of cluster development,

nature of competitive advantage, and value chain breadth (World Economic Forum, 2009: 325).

For Venezuela, only six competitive advantages are identified. Two advantages, national

savings rate and government debt, fall under the macroeconomic stability pillar, but they are

overshadowed by the spiraling inflationary tendencies that will be discussed later in this chapter.

Life expectancy, tertiary enrollment, and the domestic and foreign market size indices are also

considered to be advantages for Venezuela (World Economic Forum, 2009: 325). The

Venezuelan business owners surveyed most frequently mentioned foreign currency restrictions

and the lack of policy stability as their top concerns, though the inefficiency of the government

bureaucracy, labor restrictions, inflation, corruption, access to financing, and crime and theft

were all named among the most problematic factors for doing business in the country by at least

5% of the surveyed entrepreneurs (World Economic Forum, 2009: 324).

A Swiss research institution, IMD International Business School, compiles the annual

World Competitiveness Yearbook. The rankings place 57 economies in order of their

competiveness, which is based on criteria that include economic performance, government

efficiency, business efficiency, and infrastructure. The 2009 rankings placed Venezuela last

among the 57 nations with a score of 39.060 (International Institute for Management

Development, 2009).

Summary

The factors described in this chapter combined to weaken the business environment and

limit the effectiveness and potential of the Venezuelan economy during the first decade of the

21st century. Instead of reducing poverty, narrowing the income gap, and encouraging the

development of diverse private enterprise, the actions (or lack of action, in the arena of crime and









violence undertaken) by the government of Hugo Chavez discouraged investment (Figure 3-6)

and innovation and created a more polarized society. The reality of Venezuela is perhaps best

captured by IESA professor Hugo Faria (2008: 525):

Venezuelans lack the right to earn payments in a hard currency, to pay low taxes, to
spend their income on the cheapest goods produced in any part of the world, to
convert the fruits of their labor into any currency they wish, to pursue work and
ownership in any activity deemed legal, to charge as sellers whatever price they
consider suitable for goods and services, to charge as bankers the interest rate of
their liking and to extend or deny credit to anyone as they consider appropriate, to
contract freely in the labor market, and to have their rights safeguarded by a
well-functioning judicial system that protects private-property rights and punishes
violators of these rights.

Though Hugo Chavez and the PSUV do not deserve all of the blame for the state of the

Venezuelan economy in the early 21st century, they failed to rectify the misdeeds of previous

governments and in many cases further weakened the business environment. The promises that

Chavez made while campaigning as a political outsider never came to fruition. Corruption has

not abated; instead, it has become more rampant. Political discrimination ensures that those

friendly to the regime will occupy government posts at all levels, and the absence of judicial

independence eliminates the possibility of a fair trial. The implementation of capital controls,

rampant inflation caused by government spending, lack of central bank autonomy, and fear of

expropriation have prevented the emergence of a vibrant non-oil private sector. It is therefore

unsurprising that many Venezuelans would choose to look internationally for opportunity,

security, and prosperity.














I OU


140

120


100

80

60


40

20



Dec 04, Dec 04, Dec 04, Dec 04, Dec 04, Dec 04, Dec 04, Dec 04, Dec 04, Dec 04. Dec 04, Dec 04.
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Figure 3-1. Weekly spot price FOB in dollars per barrel, Venezuelan Tia Juana Light,
1998-2009. Source: U.S. Energy Information Administration, 2010.
















50 -52

49

40 A4 /45


3 8 37 37
30 -33 32



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Figure 3-2. Homicides per 100,000 residents. Venezuela, 1987-2008. Source: Bricefio-Le6n,
2009.


5,000

4,500
4,000
3.500

3,000
2,5'00

2,000


1,000
500

0


Figure 3-3. Bolivars per dollar, 1998-2010 (at official rate). Source: Datastream.


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SOverall Score
- Prop erty Riglts


--Business Freedom
-)-(Freedom from Comiption


JInvestment Freedom


Figure 3-4. Economic freedom in Venezuela, 1995-2010. Higher scores indicate higher levels of
economic freedom. Source: The Heritage Foundation, 2010.

60


50


40







30






Figure 3-5. Venezuela's economic freedom compared with the world, in percentiles. Value
indicates that Venezuela has a higher level of freedom than that percentage of
countries, as of the report year. Higher values are preferred. Source: The Heritage
Foundation, 2010.


.. ...




^~~~ -- ------ ^^^ f ^^^ \











7.000

6.000

5.000

4.000
3.000

2,000

1.000

0

-1.000

-2.000

-3.000

-4.000


1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Figure 3-6. Foreign direct investment in Venezuela, 1997-2008 (in US$ millions). Source:
ECLAC. 2009.


11111111E1









CHAPTER 4
EMIGRATION OF THE VENEZUELAN BUSINESS COMMUNITY

Since the rise to power of Hugo Chavez, there has been a large net population outflow

from Venezuela. As the political and economic stability of Venezuela has decreased, more than

one million Venezuelans have fled to more stable surroundings (Margolis, 2009). Like Colombia

in the 1980s and 1990s, Venezuela is a country greatly affected by the levels of emigration

caused by violence and political upheaval (Kapur & McHale, 2005). Venezuelan emigres are

said to be "looking for prosperity and business opportunities," in addition to searching out safe

havens from the insecurity and instability present throughout the country (Penzini L6pez, 2004).

The highly skilled of Venezuela have the highest propensity to emigrate in the world, with a

brain drain score of 8.31 on a scale of zero to ten (Table 4-1).

A September 2002 survey of Venezuelan households conducted by the Datanalisis

polling firm found that 41.9% of Venezuelans were ready to emigrate, an 8.1 percentage point

increase over the results received from a corresponding survey two years earlier. The survey was

conducted months before the general strike that paralyzed the Venezuelan economy in the fourth

quarter of 2002 and the first quarter of 2003; by the time that El Nacional reported on the survey

in December 2002, the percentage of Venezuelans wanting to leave was surmised to have

increased even more (Sayago, 2002). Though the Datanalisis survey was conducted more than

seven years ago, it is still important to analyze the results. Although identical conclusions may

not be reached if a similar survey were conducted today, the issues central to emigration in 2002

are just as valid for discussion in 2010.

The study determined that the primary factors influencing a desire to emigrate were "the

practically null opportunities of economic progress (a situation made more and more severe by

rampant unemployment) and the problems of personal security" (Sayago, 2002). The young were









the group with the greatest desire to leave the survey. Fifty percent of those between the ages of

15 and 24 expressed their willingness to emigrate. As age increased, the readiness to leave

decreased. Members of the middle class, "key bastions of society and the last that any nation

wants to lose," for they "contribute fundamentally to economic and social progress," were most

affected and most willing to leave Venezuela (Sayago, 2002). Still, portions of all social strata

felt that it was necessary to leave.

For the upper classes (members of the A and B socioeconomic strata), feelings of

personal insecurity outweigh economic worries. One respondent said that "I'm doing well in the

economic sphere despite Chavez, but I feel that I am risking my life and the lives of my family"

(Sayago, 2002). They complained of the ongoing economic crisis, the fall in living standards,

and the rise in poverty that accompanied the first years of the Chavez mandate. All of these

factors, they said, had augmented the wave of violent crime that was so greatly affected the large

cities of the country. The salaries found in professional positions were no longer enough to

justify remaining in one of the world's most dangerous countries, while it was undergoing such a

rapid descent into uncontrolled violence (Sayago, 2002).

Even as Chavez's government claimed it was increasing equality and opportunities for

the poorest socioeconomic strata, Venezuelans at the bottom of the pyramid saw the lack of

economic opportunity as their primary motivating factor for emigration. Though members of the

D and E groups overwhelmingly support PSUV and Chavez, who frequently rails against

capitalism and el imperio, they felt that they "do not have an alternative, but everyone who

leaves for the United States has one because that is a country of opportunity for everybody,"

citing Venezuelan baseball stars Omar Visquel and Andres Galarraga and model Patricia

Velasquez as examples of "pure luck associated with the act of going specifically to the United









States, not with any time of personal effort" (Sayago, 2002). Like Chavez, they blamed the rich

(or the oligarchy, using the popular Chavista terminology) for the situation of the country,

thereby justifying one person's view that "there is nothing wrong with robbing those who have

robbed us" (Sayago, 2002).

Though members of the poorest socioeconomic groups also desire to leave the country,

Venezuelan emigration occurs primarily among people with the highest levels of educational

attainment and social status, in contrast with migration patterns of other Latin American

countries (Sayago, 2002). Internationally, the concern about this intense, rapid migration centers

on the idea of a Bolivarian brain drain "gutting universities and think tanks, crippling industries

and hastening the economic disarray that threatens to destroy" the country (Margolis, 2009).

A recent report by the Sistema Econ6mico Latinoamericano (Latin American Economic

System, SELA) revealed that the emigration of highly skilled Venezuelan professionals to

member states of the OECD increased by 216% between 1990 and 2007 (Margolis, 2009).

Venezuela's once-burgeoning scientific research sector is also floundering: 9,000 Venezuelan

scientists are employed in the United States alone, compared with only 6,000 in Venezuela

(Margolis, 2009). More than 7,000 private businesses closed between 1999 and 2004 as their

owners fled the country for opportunity abroad (Oppenheimer, 2007). For many Venezuelans,

their favored destination lies only a few hours by plane to the north.

Venezuelans in Florida

The United States has long been a choice destination for Latin Americans because of the

country's wealth and promise of opportunity, but also for its political stability and proximity to

the Latin American region. Florida's proximity to Venezuela certainly helps. Multiple non-stop

daily flights from Miami to Caracas, Maracaibo, and Valencia permit Venezuelans to return

home to conduct business or visit relatives in less than four hours. Short one-stop connections to









Florida's other major airports in Tampa and Orlando add only about an hour to that journey,

making it possible to enjoy lunch in Central Florida and dinner in Caracas.

According to a 2004 opinion piece published in El Nacional, one of Venezuela's leading

newspapers, Venezuelans often choose to relocate to the Miami for business and linguistic

reasons (Penzini L6pez, 2004). Although Venezuelans of direct southern European descent are

able to easily obtain Portuguese, Italian, or Spanish work visas valid for use throughout the

European Union, the four-and-a-half to six-and-a-half-hour time difference between the Old

Continent and Venezuela complicates multinational business operations (Penzini L6pez, 2004).

In order to obtain a business visa, the United States' immigration laws require that foreign

entrepreneurs maintain a parent company in the country of origin, and the short distance between

the Southeast and Venezuela enables business owners to operate their companies almost

effortlessly (Penzini L6pez, 2004).

The 1990 United States Census identified only 47,997 people of Venezuelans residing

within the 50 states; that figure increased by 100.2%, to 96,091, by the 2000 decennial U.S.

Census (U.S. Census Bureau, 2009). Between 2000 and 2008, the Venezuelan population more

than doubled again, according to the Census Bureau's conservative estimates (U.S. Census

Bureau, 2009). Of the estimated 210,000 Venezuelans in the United States at the time of the

2008 American Community Survey, about 60% live in the state of Florida (U.S. Census Bureau,

2009) (Figure 4-1). A total of 35% of the nationwide figure resided in two Florida counties,

Broward and Miami-Dade, though sizeable groups had also relocated to the Orlando, Tampa

Bay, and Jacksonville metropolitan areas (U.S. Census Bureau, 2009) (Figure 4-2, Figure 4-3).

According to U.S. Census Bureau statistics, Venezuelans are not as highly concentrated in the

Miami area as was expected based on worldwide reports in daily newspapers. Broward and









Miami-Dade counties are home to 34.6% of the nation's Venezuelan population, compared with

54.4% of the nation's Cuban population and 35.6% of the nation's Nicaraguan population (U.S.

Census Bureau, 2009).

If one thing is certain about the Venezuelan population in Florida, it is that nobody knows

with any certainty how many Venezuelans there are. Altamirano Rua (2006) postulated that

150,000 college-educated Venezuelans had emigrated since the events of April 11-14, 2002.

MercoPress (2007) estimated in 2007 that 300,000 of the 1.5 million Venezuelans living

overseas resided in Florida. ElNacional calculated that there were 500,000 Venezuelans living

in the United States in 2004, including 200,000 in the Miami-Ft. Lauderdale area. Of those, the

majority is said to have arrived after 2002, in response to ever-increasing political and social

tensions. Some Venezuelans prefer not to register at the Chavista-controlled consulates; others

who were admitted to the United States on tourist visas may fear that they will be reported to

immigration authorities for overstaying the maximum trip duration. Thus, there is a lack of

reliable statistics available from the consulates. Accordingly, only 15,000 Venezuelans were

registered at the Miami Consulate General at the time of the 2004 recall election (Penzini L6pez,

2004).

Originally, the majority of Florida's first Venezuelan exiles were young single

professionals, but increasing levels of violence throughout the country, especially in Caracas,

have caused more families to move overseas to provide safety for their children (MercoPress,

2007). Now, almost all Venezuelans arrive as family units, though the household heads are still

young members of the professional class (Alconada Mon, 2007). Many had previous contact

with the state, either through vacation, family connections, or educational experience.









As was the case with the migration of the first Cuban immigrants to South Florida

following the Cuban Revolution, the Venezuelan migration is a largely upper- and upper-middle

class phenomenon. Fifty-one percent of Venezuelans in the U.S. hold a bachelor's or advanced

degree, a figure that outpaces all other Hispanic/Latino groups and nearly doubles the 27.7%

attainment of the general U.S. population (U.S. Census Bureau, 2009). It is no secret that many

Venezuelans in Florida are well-off and that the United States is "a paradise for those who have

money" and are able to obtain visas (Fernmandez, 2008).

The New York Times reported in 2008 that the arrival of Venezuelan migrants has been a

boon for the business of banks in the Miami area (Semple, 2008). The capital flight numbers in

the billions of dollars, confirming the interesting philosophy of Miami-area banks that "when

Latin America is doing well, we are doing well. When Latin America is doing badly, we are

doing well" (Semple, 2008). Despite the efforts of Chavez to impose controls to prevent the

exodus of dollars, departing Venezuelans have managed to work around these restrictions

through various maneuvers (Katz, 2007). Though many, including the thousands of Petr6leos de

Venezuela, S.A. (PDVSA) technicians and engineers fired during the 2002-2003 general strike,

are unable to continue in their previous professions, they have started anew by using their

expertise and entrepreneurial talent to succeed in the United States (Abbady, 2006; Miller, 2010).

Westonzuela and Doralzuela

Since Hugo Chavez was first elected in late 1998, many Venezuelans have moved to the

Miami-Ft. Lauderdale suburbs of Weston and Doral, two communities that have become so

well-known for their Venezuelan populations that they are frequently referred to as Westonzuela

and Doralzuela (Semple, 2008). Weston is a planned community of 65,753 residents (U.S.

Census Bureau, 2009). Hemmed in on the north and west by the Florida Everglades and on the

south and east by the sprawl of suburban Fort Lauderdale, Weston has become home for many of









the "artists, lawyers, physicians, managers, and engineers leaving the country [of Venezuela]

by droves" (Margolis, 2009). The city of Weston, which also boasts one of the nation's largest

Colombian communities, has a lower percentage of its residents living in poverty than any other

city of similar size in the United States (Grech, 2007). Further to the south, just west of Miami

International Airport in Miami-Dade County, lies the census-designated place of Doral, which

had an estimated population of 39,011 in 2008, 74.5% of which speak Spanish as a first language

(U.S. Census Bureau, 2009).

Today, Venezuelans are the largest Hispanic/Latino group in both Doral and Weston,

according to the United States Census Bureau's American Community Survey (U.S. Census

Bureau, 2009). The most recent estimates reveal that 18.1% of Doral's 39,011 residents are of

Venezuelan ancestry, compared with 11.4% of Weston's 65,753 residents (U.S. Census Bureau,

2009). In Doral, a survey administered by the city's planning department determined that 17% of

employees of local businesses were born in Venezuela, a figure which ranked second to Cuba's

31% but outpaced that of the United States, at 7% (City of Doral, 2008: 21).

Both locales are filled not only with restaurants serving arepas, cachapas, and other

Venezuelan dishes, but also the American offshoot of a famous Caracas beauty school, a

low-cost medical clinic for Venezuelan immigrants without health insurance, and several

Venezuelan-American business organizations (Grech, 2007). At least five newspapers for the

Venezuelan community are being published, and the introduction of an anti-Chavez radio station

calls to mind the Miami Cuban community's anti-Castro radio broadcasts (Semple, 2008).

A typical issue of the Venezuela AlDia or El Venezolano weekly editions is filled with the

latest news from Venezuela, anti-Chavez editorials, and dozens of advertisements. Heavily

represented among the advertisements are Venezuelan-owned import-export enterprises, but also









Venezuelan restaurants, Venezuelan shops, and the offices of Venezuelan doctors and lawyers.

Another full-page ad announces a Franchise Expo that franchisers have targeted to the

Venezuelan community. Winn Dixie, a supermarket chain, purchased a half-page advertisement

in a December 2009 issue of Venezuela AIDia to announce that hallacas, tamales wrapped in

plantain leaves that serve as the traditional holiday-season food in Venezuela, had arrived and

were available for purchase (Venezuela AIDia, 12/18/2009 issue, p. 12).

Return of the Golden Exiles?

On a warm Saturday morning in early 2003, thousands of Cubans and Venezuelans

gathered in the streets to celebrate and to protest. The scores of marchers could have just as

easily been protesting the foreign policy of the United States in Havana's Plaza de la Revoluci6n

or the Avenida Libertador of Caracas. Instead, they had congregated on Calle Ocho in Miami as

exiles participating in a "Mega March" organized by the entrenched Cuban-American

community to denounce the political activities of Hugo Chavez.

Leaders of local organizations like the Junta Patri6tica Cubana threw their support behind

the event, which featured the opposition mayor of Caracas and two Venezuelans who had been

crowned Miss Universe and another who been crowned Miss World, to express their backing for

democracy in a "parallel alliance against dictators with a military base" (Elliott, 2003). Those

interviewed expressed their desire to help the Venezuelan people avoid Cuba's fate: the loss of

democratic rule (Elliott, 2003). Florida International University's Eduardo Gamarra, the director

of the university's Latin American and Caribbean Center, commented that there was an

"overwhelming sense that the revolution in Venezuela [was] going through a similar stage of

where the Cubans were in 1959," when the Cuban middle and upper classes that would become

known as the Golden Exiles fled Fidel Castro to establish a new life in Miami (Elliott, 2003).









Castro and his self-proclaimed protege, Hugo Chavez, have indeed become fast friends in

recent years as they seek to extol the virtues of their political ideology. Thus, it is convenient to

compare the first groups of migrants to flee their regimes for the security of the Floridian

peninsula. The groups share many similarities, such as income levels and professional class,

which are easily noticeable. Nevertheless, it is wrong to assume that immigrants from Venezuela

during the Chavez era are carbon copies of their Cuban predecessors. It is highly unlikely that

the Venezuelans, nor any other group of immigrants, will again be the beneficiaries of the unique

set of circumstances that allowed Cuban-Americans to become the Golden Exiles.

Nevertheless, the international media has repeatedly made the assumption that

Venezuelans in Florida, as well-educated Latinos fleeing a left-leaning regime, are following in

the footsteps of Castro-era Cuban immigrants to the state. Articles about Venezuelan

immigration to the United States say that Latin America has seen this story played out before

(Margolis, 2009), that "Cuba and Venezuela have parallel lives" (Fernandez, 2008), and that the

influx of Venezuelans represents an exodus equal to that experienced by Cuba in the 1960s

(MercoPress, 2007; Semple, 2008). Despite parallels such as the class composition of the two

groups of exiles and similar location preferences, there are significant differences between

Cuban exiles of the 1960s and Venezuelan migrants in the Chavez era, in terms of U.S.

government policy, the international geopolitical structure, the demographics of their destination

region, and contact with their homeland.

When the first Castro-era exiles arrived to South Florida half a century ago, they found a

"sleepy Anglo resort town" devoid of any experience with immigrants from Latin American and

content to serve as a suburb of its larger neighbor, Miami Beach (Alberts, 2006: 138). It was a









quintessentially Southern city, a slow-moving place that survived simply by catering to the needs

of the many snowbird retirees from the northern United States (Grenier & Perez, 2003).

Almost overnight, the culmination of the Cuban Revolution brought about a mass exodus

of Cubans to South Florida. Members of the Cuban elite "saw their life chances and

opportunities limited by the new order," and thus comprised a large percentage of those who

immigrated to the United States in the aftermath of the Cuban Revolution (Perez, 2009: 139).

The nationalization of the industrial sector also ensured that business owners were some of the

first to leave the island (Alberts, 2006). These members of the professional and entrepreneurial

classes had tertiary educational attainment levels much higher than the general United States

population, like today's Venezuelans, and rejected the involvement of the state in the economy in

favor of the ideals of capitalism (Grenier & Perez, 2003: 52).

The most extensive wave of Cuban migration, though, occurred between 1965 and 1973

under a Memorandum of Understanding signed by the governments of Cuba and the United

States. This memorandum, which gave priority to Cubans with relatives already residing in the

United States, favored the pre-revolutionary middle- and upper-class and led to a further

consolidation of the Batista-era elite in the Miami area (Perez, 2009: 139)

Similarly, public opinion and fear of communism in the United States allowed the

government to use Cuban migration trends as a political weapon in the fight against the Soviet

Union and its allies (Grenier & Perez, 2003: 22). Cuba's Golden Exiles were granted refugee

status that permitted them to "enter without the restrictions imposed on most other nationality

groups" (Grenier & Perez, 2003: 23). They benefitted from federal and local programs that

provided massive amounts of aid with little fanfare that "greatly enhanced their endeavors"

(Stepick et al., 2003: 38-39). The opportunities provided to potential Venezuelan migrants by the









U.S. Government, meanwhile, are few and far between. Thus, Venezuelans seeking to move to

the United States permanently and legally must first possess a visa, which can take years to

receive. In the post-Cold War era in which we live:

Venezuelan emigrants do not qualify as political refugees and enjoy no special
advantage in the fierce competition for the 400,000 H1B work visas issued yearly
by the U.S. for highly skilled migrants, three quarters of which go to Indians, who
have an edge because they can speak English. (Margolis, 2009)

Both the Bush and Obama administrations have refused to recognize deferred enforced

departure (DED) for Venezuelans in the United States who have overstayed temporary tourist or

educational visas. DED status would suspend the deportation of immigrants who may be at risk

of politically-motivated danger upon return to their country of origin (Campos Mello, 2009).

Although such status has been granted to Liberians, Nicaraguans, Chinese, Haitians, and

Salvadorans, among others, during the last two decades, it has not yet been granted to

Venezuelans.

Despite overt government blacklisting in the form of the Tasc6n List, the document spread

by Chavez supporters that contained the personal data of every signatory of the 2004 recall

referendum petition, it is quite difficult for Venezuelans to receive political asylum in the United

States (Alconada Mon, 2007). Many unsuccessfully cite their inclusion in the Tasc6n List when

applying, and are subsequently forced to return to Venezuela (Alconada Mon, 2007). The fact is

that Cubans are the beneficiaries of a unique Cold War (Grenier & Perez, 2003: 1), while

Venezuelan immigrants are the product of a completely different era.

The Miami to which these first Cuban exiles moved was completely different than the

global city of today. Downtown consisted of a three-block radius surrounding the courthouse.

Policemen even remarked to one Cuban woman in 1959 that had the easy job of searching for

two Hispanic individuals. Since there were so few Latinos in the region, they said that the









process would be quick and simple (Alberts, 2006: 139). Alberts argues that the locale's

"experiences were clearly unique, as no other city had ever been so rapidly and profoundly

transformed by a single immigrant group" (Alberts, 2006: 149).

In contrast, the Miami to which Venezuelans are fleeing is completely different. Latinos,

mainly Cuban exiles and their children, control virtually all of Miami-Dade's institutions

(Stepick et al., 2003: 139). Long waves of immigration from Latin America and the Caribbean

have made the city relevant internationally, transforming it into Latin America's economic

capital (Stepick et al., 2003: 10). Its status as a hub for regional banking and trade has truly made

it a multicultural, multilingual "Gateway to the Americas" (Stepick et al., 2003).

Despite the proximity of Havana to Miami, Cuba's Golden Exiles had far lower levels of

contact with Cubans in Cuba during their first years on the Florida peninsula than Venezuelans

in Florida have maintained with their countrymen in Venezuela. Though they expected to soon

be able to return to Cuba, as soon as Castro was undoubtedly removed from power, the economic

embargo that was imposed in 1962 severely limited Miami Cubans' contacts with the island. In

contrast, many Venezuelan migrants to the Miami area regularly visit Venezuela. Multiple daily

flights on American Airlines, LAN, and Santa Barbara Airlines connect Miami with Caracas and

Maracaibo, in what some have described as a newpuente aereo (air bridge) (Campos Mello,

2009). Venezuelans throughout Florida are permitted to vote in Venezuelans elections at the

consulate in Miami, while billions of dollars of business are conducted, legally, between

Venezuela and the state of Florida every year.

Case Study

In early 2010 I conducted a series of 12 interviews with Venezuelan businesspeople.

Eight (five males and three females) of the participants lived in Venezuela at the time of the

interview and four (all male) resided in Florida. The participants in this study were selected









through the snowball sampling method. I began by asking personal contacts in the Venezuelan

communities of Tampa, Jacksonville, Orlando, and Gainesville to refer me to entrepreneurs who

would be willing to discuss their experiences. Those key informants also assisted in setting up

interviews with contacts in Venezuela. The interviews were conducted in a semi-structured

format. Each interview was derived from an interview guide designed to bring about discussion

on topics central to this study. The guide contained questions relating to the Venezuelan business

environment, the decision process surrounding migration, and the challenges faced by immigrant

entrepreneurs.

The interviews were conducted in a variety of formats. Those interviews that took place

with persons residing in the United States were conducted either in-person or via telephone,

based on the preference of the person being interviewed. Those interviewees were asked if they

preferred to do the interview in English or Spanish. All but one chose English. The interviews

with persons residing in Venezuela were primarily carried out using Skype, though a small

number of interviewees preferred to answer questions via email.

Finding potential interviewees was not difficult; persuading them to participate was an

entirely different story. To protect the anonymity of the individuals who shared their views and

experiences, the names and locations of employment are not revealed in this study. Since it was

agreed that the individuals would remain anonymous, they are referred to in the results section

by pseudonyms which I assigned (Table 4-2). Even with this in mind, many ultimately declined

to participate. In more than one instance, a potential participant agreed to meet me at a specific

time and location in order to take part in the interview before later reconsidering and

withdrawing from the interview process altogether.









On another occasion, a key informant who introduced me to one interviewee stated that I

should ask the interviewee about his friend and neighbor, the owner of a Venezuelan restaurant.

The interviewee claimed that he did not know the individual, even when I mentioned her by

name. One interviewee suggested that this was due to fear instilled by the Chavez regime's

attacks on free speech. Another key informant stated that the reluctance was due to the illegal

status of many Venezuelans in Florida, though this seems likely because the individuals in

question were proprietors of licensed businesses.

Evaluation of the Pre-Chavez Business Environment

The participants had a positive, yet somewhat tempered, view of the Punto Fijo-era

Venezuelan business environment. Felix, Luis and Carlos agreed that the key to the pre-Chavez

business environment was its stability, in part due to the legal security offered by the

independent judiciary. While Jorge, a small business owner, admitted that the economy "was no

longer booming," as it had during the 1970s, he and other Venezuelan entrepreneurs were

comforted by the fact that "there was certain coherence in the implementation of plans and

solutions."

Rafael, however, disagreed with the assertion that there was stability and coherence.

Although the country was better off than it is now, he said, all politicians are equal in that they

focus on "trying to obtain personal benefits instead of really helping the people." Still, Rafael

concedes that there were available private sector jobs and high levels of commercial activity.

"We were happy and nobody realized it," he said, "and now we miss all that we once had."

Antonio, who is in the process of opening a store in the Orlando area, argues that the

business environment pre-1998 was exactly what precipitated the rise of Chavez to the

presidency. The blunders committed by the governments of the Punto Fijo period, he says,

ensured that the basic needs of large sectors of the population were being completely ignored.









When combined with the onset of the Asian financial crisis that rapidly spread to Latin America

in 1997 and pushed oil prices even lower, it became a perfect storm under which Chavez the

outsider was the only beneficiary.

Paola, an economist, recognized that Venezuela had been "suffering from

macroeconomic problems that were starting to be persistent" and overdependence on oil, but still

thought that enough confidence in the economy was generated by the government's dealings

with the private sector. Small firms still sought to "capture market niches" and search for

opportunities based on ideas that had been successful in other countries. People still believed,

said Paola, in Venezuela's economic potential. Alberto claims that, unlike today, the people did

not depend entirely on the state. Instead, there was innovation that drove private investment and

generated economic opportunities. Despite the economic hardships during the second terms of

Carlos Andres Perez and Rafael Caldera, said entrepreneur and professor Pilar, Venezuela still

"had a future and there was hope."

Deterioration of the Business Environment

Because of Chavez's attacks on and hostility toward private firms, Luis says that there is

little motivation for anyone to invest. There are fewer opportunities, and the "the state is

omnipresent in all commercial activities." Felix agreed, stating that the market for professional

labor has been drastically affected because everyone believes that the state wants to expropriate

every private enterprise. Adriana, meanwhile, said that Chavez has made his one objective

perfectly clear: to eliminate all private enterprises completely, as soon as possible.

Under Chavez, says Alberto, the central bank has been unable to control inflation because

of the government's insistence on printing money whenever it wishes to pursue new projects.

The fact that there is "no separation between fiscal and monetary policy," explained Felix, means

that the state will never moderate its behavior. Instead of being guided by accepted economic









principles, institutions like the central bank are directed by what Adriana calls "political factors

that have very particular objectives that benefit an ideological model." The inability or

unwillingness of the state to control the monetary liquidity, remarked Luis, "exposes

Venezuelans to the biggest tax of all: inflation." Such persistent inflation invariably causes

purchasing power to decrease, and Felix believes that Venezuela is no exception. He says that

the middle class has been hit hardest by the effects of inflation under Chavez, because they

receive no assistance while the poor benefit from subsidized goods and the rich move all of their

monetary assets to foreign banks.

The overvalued, fixed exchange rate unfairly penalizes entrepreneurs who wish to export

their goods, says Luis. In effect, the state "is expropriating each family's savings in bolivares."

Felix echoed Luis' comments, criticizing the dependence on imports created by the artificially

overvalued exchange rate. Because of the state's exchange rate policy, Adriana believes that

there is no longer an incentive to produce goods and services; it would be impossible to export

them, and there is not enough internal demand to justify the necessary effort. The deterioration of

the business environment discourages entrepreneurs from even trying to offer products to other

Venezuelans, says Adriana, because the economic capacity of the country is so low that nobody

would be able to be a consumer of those goods and services.

Insecurity and Chavez's hostility toward private firms have forced entrepreneurs to close

shop and flee the country, meaning that domestic production and employment are subsequently

reduced and the "overall productive capacity has become very low." Alberto said that the

resultant loss of purchasing power from the forced devaluations of the bolivar means that

Venezuelans are unable to afford the necessary food for their families and capital inputs for their

firms, products which must be imported from abroad. For this reason, remarked Alberto, "the









store shelves are always empty." The country is thus left in economic stagnation, a term

mentioned independently by three participants.

The root of all of Venezuela's economic problems, said Alberto, is that "everything

depends on the state." No sane person, Venezuelan or non-Venezuelan, would ever choose to

invest in a country with so much dependence on an entity that is incapable of performing its

duties, said Alberto. As an example, Alberto alluded to PDVSA, the employer for which he

worked during the 1970s and 1980s. Where production reached 3.6 million barrels daily at the

time of Chavez's election, mismanagement and the atmosphere of firing and targeting supporters

of the opposition has caused production to drop to only 2.25 million barrels daily. Current

PDVSA employees, who Alberto says are untrained and unqualified, have damaged the firm's

equipment so badly that it would be much cheaper to construct new refineries than repair the old

ones. Likewise, said Alberto, Venezuela is not stuck in its current electric crisis because of a

drought or because private firms and the oligarchy use too much electricity, as the government

claims, but because of acute mismanagement. The government, said Alberto, is almost incapable

of electrical generation and transmission, and it does not know how to effectively distribute the

little electricity it does produce.

The Decision to Emigrate

Fernando, an MBA student at a university in Florida, lived in Venezuela until he was 25.

After graduating from college with a degree in business administration, he was hired by a large

mobile telecommunications firm and was quickly promoted to serve as a personal account

manager for 25 of Venezuela's richest individuals. As their special contact, he was responsible

for every aspect of their relationship with the firm, such as immediately replacing stolen cell

phones and arranging for devices to be used internationally on a moment's notice. He initially

did not plan to leave Venezuela; in fact, he was in the process of starting his own business a









firm that would import new technological innovations and then market and introduce them to

corporate clients. Corruption, though, was too widespread. Although "you can do anything you

want if you pay the government enough money," as Fernando told me, he refused to spend the

equivalent of thousands of dollars in bribes and then wait hundreds of days for government

approval.

Every participant cited personal insecurity as the principal reason that people are

choosing to leave the country. Fernando said that it was no longer safe anywhere in the country,

but especially in the Caracas metropolitan area. He said that increasing levels of crime serve as

more of a threat to private property than the government does, and provided an example of a

hardworking entrepreneur who works night and day to be able to save up enough money to

purchase a new car, only to have it stolen at gunpoint in broad daylight the next day. In contrast,

"nobody can take away what you've earned in the States," Fernando told me. "You can't walk on

the street in some places without being robbed, kidnapped, or killed, and for that reason I

decided to move."

Rafael received a university degree in electrical engineering, but later returned to school

to complete an MBA. Although he worked full-time as an estimating engineer for PDVSA, he

and his wife also owned a private elementary school. Although it was clear to him that Chavez

"wanted to convert Venezuela to communism and socialism," Rafael did not plan on leaving

Venezuela until December 2002, when he was fired from his post at PDVSA for supporting the

general strike. He says that he and his co-workers are "considered enemies of the government,"

and are thus unable to receive government businesses licenses or seek employment with any

major company. He moved to Saudi Arabia for the next few years in order to work in the oil









industry, while his wife and two children remained in Venezuela. By 2007, he and his family

were able to move to Florida, but their business did not survive the move.

Eduardo, like many other college-educated Venezuelans, was trained as an engineer but

found employment outside the saturated oil engineering sector. He first worked for a utility

company in his hometown of Barquisimeto after graduating from college during the early 1990s,

but sensing an opportunity he created a business two years later. For the next five years, he made

frequent trips to Panama and the state of Florida, where he purchased contact lenses, glasses, and

frames from wholesale distributors and then sold them from his stores. But one day while

Eduardo was stuck in traffic with his wife and one-year old daughter shortly after Chavez took

office, a man walked up to the car and stuck a gun in Eduardo's mouth, threatening him for

driving too slowly a few miles back. That was all the impetus needed to force Eduardo and his

family to leave the country.

As a store-owner and part-time consultant with a degree in economics, Antonio

understood that the Venezuelan economy had been faltering, even before the rise to power of

Chavez. Still, for many years he resisted the temptation to move away from Maracaibo, the lively

second city of Venezuela that he had called home his entire life. As business slowed and demand

for his consulting services diminished, he began to recognize that the instability and lack of

application of laws was becoming more severe. He first persuaded his oldest daughter to learn

English and pursue graduate education in Florida; the rest of the family followed her in early

2010.

Felix, Fernando, and Luis mentioned the loss of purchasing power as a secondary, but

important, reason for departure, while Paola felt that it is also a general lack of opportunities for

advancement in the private sector that has led Venezuelans to flee the country. Only Jorge, Luis,









and Adriana specifically stated that the political climate was one of the main reasons for

Venezuelans to move abroad, though all of the participants blamed Chavez for the deterioration

of the social environment and the country's rampant violence. Felix and Adriana agreed with

Carlos' assertion that when there is "little hope for a future," there is nothing a person can do

other than to seek out a better quality of life elsewhere.

The participants still living in the country often think of leaving. Though Pilar says that it

is a constant thought running through her mind, it would be a "last resort." Felix says that he will

leave if the government causes freedom of expression to be further eroded, while Alberto is

considering joining his children in Florida. Each interviewee still residing in Venezuela stated

they had family members who had fled the country; all had relatives living in the United States

and all but one had family members living in the state of Florida. Three of the eight participants

said that their relatives had left the country in 1999 and 2000, following Chavez's first election.

The relatives of the remaining five did not leave until after 2004, when the recall referendum

failed.

Effects of Emigration on Venezuela

Not one participant believed that continued entrepreneurial emigration would have a

positive effect on Venezuela. Felix, who himself will consider leaving if no progress is made at

reestablishing freedom of expression and the separation of powers, believes that emigration is

causing the quality of educational institutions to decline in addition to forcing much of the

economy into the informal sector. In short, he said, Venezuelan society is "quickly moving

backward." Pilar repeated the assertions made by Felix, saying that the combined forces of

emigration and government hostility would quickly eliminate entrepreneurship and the

environment for business in the near future. Carlos said bleakly that entrepreneurship and the









business environment are nearing total collapse after years of deterioration. Unless something

changes, said Jorge, the drain of talent will leave Venezuela as "a country of ghosts."

Experiences in Florida

Eduardo's goal was to leave Venezuela as soon as possible after their brush with death.

As he was initially unable to secure a residency visa in the United States, he contacted a friend

living in Montreal who encouraged him to apply for Canadian residency. In the meantime, he

studied French daily in preparation for his family's move. His wife, whose family had emigrated

from Syria to Venezuela shortly before her birth, already spoke French and Arabic. Upon their

arrival, Eduardo was unable to find employment. Though his old acquaintance encouraged him

to stay and continue to look for work while temporarily being supported by the Canadian safety

net. Eduardo, who already had become frustrated with the freezing Quebec winter, refused. His

American visa had finally been approved, and Eduardo moved to Miami with his brother.

Within a few months, Eduardo became aware that he intensely disliked Miami. The

people he encountered were rude; he was especially put off by one group. He exclaimed that

"Cubans try to piss you off all the time!" They, he said, "think they own Miami." Shortly

thereafter, he contacted a classmate from his elementary school in Barquisimeto who was living

in a smaller city a few hours to the north. There, he and his wife felt comfortable enough to

immediately rent an apartment. While they studied English, Eduardo and his wife purchased a

retail franchise. Within two years, they had saved enough money to purchase a new

four-bedroom house. Though he said that he continues to work long hours, Eduardo said that he

is happy to have found success. Although he enjoys spending time with other Venezuelans living

in the area, Eduardo has no desire to return to Venezuela.

As it turns out, Fernando had an advantage over most other Venezuelans he was born in

the United States while his father was attending graduate school. Though he had only lived in the









United States until he was two years old and had never learned English, he was a U.S. citizen by

birth. Thus, he was able to move to the country and seek out employment. That, he says, has

"been a huge advantage for me." Fernando knew that he wanted to live in Florida because of its

climate and prominent Latino population, which made him feel very comfortable. Though he

initially considered living in Miami, he disliked that it was also a divided, violent city.

Venezuelans in the United States, he said, do not like to only associate among themselves, as he

feels other Latino groups (especially Argentines, Colombians, Cubans, and Nicaraguans) in the

Miami area did. Instead he chose to move to the central part of the state, where he says that he

still is able to find any Venezuelan product he desires at a number of Venezuelan-owned

businesses.

Fernando learned English and was then hired as a personal banker. Now, after receiving

his MBA he plans to create a project management start-up firm that he hopes to expand to the

Spanish-speaking countries of Latin America, which he thinks have great potential despite the

complex issues faced there by international firms. Fernando admits that he would even do

business with the Venezuelan government, because "there is a lot of money there," but he would

not return there permanently and subject his family to violence and fear. As long as there is an

opportunity, said Fernando, "people will try to come here; they will try to chase the American

dream."

Antonio chose to move to Central Florida because of his previous knowledge of the area.

As a parent, he had taken his children to theme parks in the region, and personal contacts had

informed him that he would be able to survive initially despite being a monolingual Spanish

speaker, which he may not have been able to do in other parts of the country. As a recent arrival,

Antonio spends most of his nights studying English. He still consults some firms in Venezuela,









and has been marketing his services throughout the state of Florida. Antonio remains optimistic,

saying that he will officially open a Florida branch of his business within the next year.

Compared to Antonio, Rafael has had an easier time adjusting to life in the state. Because

of his career at PDVSA and his time working in Saudi Arabia, he already spoke English and had

received advice from numerous professional acquaintances, many of whom migrated to the

United States before him. Despite being well-paid during his career as an engineer, Rafael has

been harmed financially by the inability to sell his home in Maracaibo, which he blames on the

economic situation and atmosphere of violence caused by Chavez. He and his wife wish to open

another private school here, but realize that they will be unable to due to the necessary capital

and licensing requirements. Rafael knows that through education and experience he is qualified

to work in many fields, yet is unable to find meaningful employment at his skill level. In the

meantime, he will continue to do freelance consulting for the oil industry, a single-employee

profession that he says is among the most common for Venezuelans residing in Florida.

Predictions for the Future of Venezuela

Luis said that Venezuela has no future, because no long-term plans are capable of being

made by the government. As a young father, he sadly says that "my children will grow up in

another country." Rafael agrees, saying that "there is no light at the end of the tunnel." Carlos, on

the other hand, is looking forward to September 2010's parliamentary elections with great

anticipation. He believes that if the opposition can band together in unity, they will be able to

change the course of the country and end Chavez's stranglehold on power by the time of the

presidential elections in 2012. Still, he admitted, failure to achieve victory in 2010 would assure

that Venezuela becomes "a second Cuba."

Even if there were an immediate regime change, Pilar believes that it would take two

decades "working at full speed" in order to return to the pre-Chavez economic conditions.









Fernando thinks that it will take generations to fix the damage that Chavez has caused.

"Everyone that has left the country will have to one day be able go back. We will have to show

them what we have learned, not only here in the States but around the world, to build this

country [Venezuela] from the ground [up]." For now, though, he will not return to Venezuela

because "there is no respect for new ideas." Until there is, the current pattern will continue.

Summary

Since 1998, the Venezuelan population in the state of Florida has grown rapidly as

well-educated members of the middle class seek to escape the ever-present threat of crime and

violence as well as the economic uncertainty that accompanies the populist regime of President

Hugo Rafael Chavez Frias. The loss of private-sector jobs caused by the closure of private

enterprises since the rise of Chavez is significant, and Venezuelans believe it could take decades

for the country to regain the ground that it has lost due to economic mismanagement by the state.

Conversely, the flow of human capital to Florida is slowly becoming a boon for the state's

economy. After adapting to their new surroundings, Venezuelans are using skills gained in their

native country to open new businesses that in the future will allow for greater connections

between the state and Latin America.











Table 4-1. Inequality and the propensity of the highly skilled to emigrate
Brain drain Percent income held
Country (10=high, 0=low) by top two deciles
Venezuela 8.31 53.1
Colombia 8.05 60.9
South Africa 7.92 64.8
New Zealand 7.17 46.9
Philippines 7.08 52.3
India 6.85 46.1
Slovak Republic 6.62 31.4
China 6.22 46.6
Korea 5.89 39.9
Canada 5.88 39.3
Malaysia 5.62 53.8
Turkey 5.54 47.7
Russia 5.52 53.7
Sweden 5.52 34.5
Poland 5.38 40.9
Italy 5.36 36.3
Indonesia 5.00 44.9
France 4.95 40.2
Mexico 4.86 58.2
Estonia 4.63 41.8
Hong Kong 4.62 47.0
Denmark 4.59 34.5
Hungary 4.48 39.9
Singapore 4.42 48.9
Australia 4.30 41.3
Belgium 4.27 34.5
Greece 4.24 40.3
United Kingdom 4.22 43.0
Iceland 4.11 37.0
Slovenia 4.11 35.4
Brazil 4.07 63.8
Portugal 4.04 43.4
Thailand 3.97 48.4
Israel 3.94 42.5
Switzerland 3.66 40.3
Finland 3.46 35.8
Czech Republic 3.40 35.9











Table 4-1. Continued


Brain drain
Country (10=high, 0=low)
Germany 3.32
Japan 3.17
Austria 3.12
Ireland 2.86
Norway 2.84
Netherlands 2.81
Spain 2.71
Chile 2.68
United States 1.45
Source: Kapur & McHale 2005, p. 82


Table 4-2. Case study participants
Pseudonym Location
Adriana Venezuela
Alberto Venezuela
Antonio Florida
Carlos Venezuela
Eduardo Florida
Felix Venezuela
Fernando Florida
Jorge Venezuela
Luis Venezuela
Paola Venezuela
Pilar Venezuela
Rafael Florida


Percent income held
by top two deciles
38.5
35.7
33.3
42.9
35.8
40.1
40.3
61.0
46.4


Profession
Electrical engineer
Economic consultant, fmr. PDVSA engineer
Store owner, consultant
Small business owner, fmr. PDVSA executive
Franchisee, educated as engineer
Industrial engineer
MBA student
Small business owner
Financial advisor, professor
Economist
Store owner, professor, former engineer
Freelance consultant, fmr. school owner and
PDVSA engineer

















Massachusetts
2.2%

Virgnia
2.6%A
New Jersey
2.6% "
NorthCarolina
2.7%
Georg,
2.8%I


\ lorida
47.7%


C alifciIt
5.4C


Texas
10.2%


Figure 4-1. Location of Venezuelans in the United States by state, 2009. Source: U.S. Census
Bureau, 2009.













Pinellas Seminole
S .- :.


2i
H illsb oroug
3.2%

Palm Beac
4.3%



Orange
7.7%


59 Others
f Wn(


-JIiami-Dade
46.3%


Figure 4-2. Venezuelans in Florida by county, 2009. Source: U.S. Census Bureau, 2009.











4.0%

3.52%
3.5%


3.0%
2.64%

2.5% -


2.0% -

1.50% 1.50%
1.5%0


1.0%
0.68% 0.68%

0.5% 0.45% 39%
0.21% 0.14% 0.10%

0.0%





Figure 4-3. Venezuelans as a percentage of the total Hispanic/Latino population, selected
metropolitan areas. Source: U.S. Census Bureau, 2009.









CHAPTER 5
CONCLUSION

This study was designed to investigate the cause and effects of Venezuelan entrepreneurial

migration to the state of Florida during the presidency of Hugo Rafael Chavez Frias. I analyzed

the long-term trends that affected Venezuelan economic performance and competitiveness during

the pre-Chivez Punto Fijo period, which began with the establishment of a power-sharing

democracy by the Acci6n Democritica (AD) and COPEI political parties in 1958 and culminated

with Chavez's triumph in the December 1998 presidential election. After tracing the factors that

have caused a continuing deterioration in the Venezuelan business environment since 1998, I

conducted a series of open-ended interviews with Venezuelan business professionals to

determine the principal reasons for emigrating, the challenges faced by skilled immigrants upon

arrival to the state of Florida, and the consequences that Venezuela is facing as human capital

flows out of the country. This chapter draws upon the themes raised during the interviews and

attempts to place them in the context of the related literature; it additionally presents the

limitations of this study and offers questions that would be worthwhile topics for future research.

Research Findings

Pre-Chavez Business Environment

The Venezuelan economy and business environment significantly deteriorated between the

1958 election of R6mulo Betancourt and the 1998 election of Hugo Chavez. Due to widespread

corruption, a lack of policy continuity, high levels of government spending, and an

overwhelming overreliance on revenue from the export of one commodity, oil, Venezuela

experienced high levels of volatility and virtually no economic growth during those four decades.

Despite the country's Punto Fijo-era economy being termed a "growth disaster," the

Venezuelans who I interviewed expressed moderately positive views about the pre-Chivez









business environment. Though the interviewees recognized that the economy was in a steady

state of decline after AD's Carlos Andres Perez left office for the first time in 1979, they still

believed that hope and optimism prevailed in the face of adversity and economic difficulties. It

was recognized even then that Venezuela relied too much on its petroleum, but private

investment and innovation helped to drive the economy. Perhaps most significantly, Venezuelans

did not depend on the state.

Emigration from Venezuela

Unanimously, every Venezuelan whom I interviewed agreed that personal insecurity was

either the reason he chose to leave or the reason that compels most Venezuelan emigrants to flee

the country. Although none of the Venezuelans stated that Hugo Chavez was the main reason for

departure, they held him responsible for the wave of violent crime that has swept across

Venezuela during his tenure. When asked if he would return to Venezuela if Chavez managed to

fix the problem of personal insecurity, Fernando laughed and said that the scenario would be

impossible because Chavez refuses to acknowledge the problem exists.

Human capital outflows caused by violence are mentioned sparingly in the related

literature, but there are many similarities between the Venezuelan situation and the case of

Colombian entrepreneurship in the United States described by Portes et al. (2002). Fleeing the

drug-related violence that spread through that country during the 1980s and 1990s, middle-class

Colombians moved to the United States in search of security for their families. The Venezuelans

living in Florida who I interviewed were, like the Colombians in Portes' study, distrustful of

other individuals and wary of other Latino groups, especially Cubans, in Florida.

As was determined by Ozden (2006), an immigrant's experience in a skilled profession in

the sending country does not generally translate to a corresponding salaried position in the

United States, because of language issues and other factors. Despite Eduardo being trained in the









field of engineering, he was unable to find employment as a civil engineer and instead eventually

opened a franchise in an entirely unrelated line of work. Rafael is facing a similar situation: the

two meaningful professions (as an estimating engineer and a private elementary school owner)

he once enjoyed in Venezuela have for the time being been replaced with the small amount of

work he is able to obtain as a freelance oil-sector consultant.

Thus, it can be expected that, economically speaking, the gains from Venezuelan

professional immigration to Florida are not as large as would have been achieved under a

scenario in which skills obtained through education and professional experience were easily

transferred across international and linguistic borders. Despite the difficulties encountered by

Venezuelan professionals seeking to find jobs or start businesses in Florida, they do not plan to

return to their home country unless the political, economic, and social environments change

drastically, thereby making a net brain gain for Venezuela unlikely in accordance with the

findings of Kapur & McHale (2005), Portes (2008), and Solimano (2002).

Significance

Human capital flight is a subject that has been studied by economists and sociologists in

numerous locales throughout the world. My study focused on contemporary entrepreneurial

migration to the state of Florida from Venezuela, a country plagued by high levels of inflation, a

polarized political atmosphere, and a violent crime rate that ranks among the world's highest.

This study analyzed the historical events that have shaped the deterioration of the current

Venezuelan business environment and cleared the path for the rise of populist president Hugo

Chavez, finding that today's economic policies are a continuation of, not a break from, the failed

strategies of the pre-Chavez Punto Fijo period.

My research found that increasing levels of crime and violence during the presidency of

Hugo Chavez are the primary cause of the massive emigration of middle- and upper-class









business professionals from Venezuela in search of more security and better opportunities

elsewhere; politics or economics alone seem to have little to do with the decision to emigrate.

For many that choose to migrate to the state of Florida, they are often faced with the difficult

challenge of starting a new business or finding a suitable profession at an equivalent skill level to

the job that was left behind. Still, Venezuelan immigrants are unlikely to consider moving back

to their home country. Venezuela is becoming worse off economically and intellectually because

of the departure of some of its most entrepreneurial and talented citizens, and it is clear that these

trends will not reserve unless significant, responsible reforms are undertaken by the Venezuelan

government.

Limitations and Topics for Future Research

Of the Venezuelans I interviewed, all were staunchly anti-Chavez. It would have been

worthwhile to hear the opinion of at least one pro-Chavez entrepreneur. There are some

entrepreneurial individuals, often known as the boliburgueses (Bolivarian bourgeois), who have

advantageously aligned themselves alongside the government, and they have thus benefitted

from the spoils of government contracts and favors. Despite their success in Chavez's

Venezuela, do they still consider emigrating? How do they feel about Chavez's threatening

attitude toward private enterprise?

Because of a lack of personal connections and access, I was also unable to interview any

members of the lowest socioeconomic strata, who lack the ability to emigrate from Venezuela

despite the desire to do so. I think that it would be extremely informative to hear from

individuals in these socioeconomic groups who aspire to be entrepreneurs. Though members of

these strata historically have formed the base of support for Chavez and the PSUV, do those with

entrepreneurial tendencies share the same political leanings? Are they being harmed or helped by

the vast network of missions and subsidized goods? Do their fledgling businesses receive









assistance from the government, or are they being crowded out by public sector initiatives and

regulations?

Furthermore, while the Venezuelans I interviewed claimed that personal insecurity was the

primary motivating factor for emigration, I do not believe that violence can so easily be

disentangled from economics and politics. What is driving Venezuela's rampant violence? Is

Venezuela's deteriorating business environment a cause or an effect of the increase of crime

throughout the country? What role does the extreme polarization of the country, encouraged and

exploited by Chavez, play? If addressed, these topics (while far from being an exhaustive list)

would provide valuable insight into this important issue of Venezuelan human capital and

migration that lies at the heart of the field of Latin American studies.









APPENDIX A
INTERVIEW GUIDE

1. What was your occupation in Venezuela?
a. Did you own your own business?
b. Do you still have your own business in Venezuela?
c. What is its relationship to the business here?
2. What is your educational attainment?
a. Did you attend university in Venezuela, in the United States, or elsewhere?
b. If you have children, at what age did they leave? Where have they been
educated?
3. What is your occupation in the United States?
a. Do you own your own business in the U.S.?
4. Do you still maintain business connections with Venezuela?
5. When did you leave Venezuela?
6. What was your primary reason for choosing to leave Venezuela?
a. Why did you decide to move to Florida?
7. Do many of your family members still live in Venezuela?
a. What percentage now live in the U.S.?
b. What percentage live in a country other than the U.S. or Venezuela?
8. Have your views on Hugo Chavez changed over time?
a. What did you think of Chavez in 1992, after his attempted coup?
b. What did you think of Chavez in 1998, when he ran for president?
9. What was your opinion of the Venezuelan business environment before 1998?
10. How has the business environment changed during Chavez's tenure in office?
c. Did any of these changes affect your business or you personally?
11. How would you characterize the attitude of the government toward private enterprise?
12. How has the fixed exchange rate affected the Venezuelan economy?
13. What will be Venezuela's future?
a. If young Venezuelans continue to leave the country to attend universities,
what will happen to education, entrepreneurship, and the business
environment in the future?
14. Do you plan to move back to Venezuela?
a. If yes, what would have to change?
b. Would you ever consider moving back to Venezuela while Chavez is
president?













July 5, 1811

1811-1823

1822



January 13, 1830

October 18, 1945

1945-1948

November 24, 1948

July 28, 1954

January 23, 1958

October 31, 1958

1960

1971

1973

1975-1976


1979

February 18, 1983


February 27, 1989



February 4, 1992


APPENDIX B
TIMELINE OF EVENTS

Independence declared from Spain

Venezuelan War of Independence

Republica de Gran Colombia formed by the provinces of Cundinamarca,
Venezuela, and Quito following the decisive victory over Spanish forces
at Carabobo and the signing of the Constitution of Cucuta.

Venezuela secedes from Gran Colombia and declares independence

Golpe de estado by AD and military against President Isaias Medina

Trienio period led by R6mulo Betancourt and R6mulo Gallegos

Military junta led by Marcos Perez Jimenez and Carlos Delgado Chalbaud

Hugo Rafael Chavez Frias is born in the town of Sabaneta, Barinas state.

Rioting throughout the country forces Perez Jimenez to resign.

Punto Fijo Pact power-sharing accord signed by AD, COPEI, and URD.

OPEC proposed and formed by government of Betancourt (AD).

Hydrocarbons Reversion Law signed by Rafael Caldera (COPEI).

First oil shock.

Carlos Andres Perez nationalizes the iron and petroleum industries;
PDVSA created.

Second oil shock.

Venezuela defaults on its debt, the bolivar is devalued and a dual
exchange rate is announced.

The Caracazo occurred as Venezuelans protested Perez's Economic
Adjustment Plan. Up to 2,000 are killed after Perez orders the army to
crush the riot.

The MBR-200 revolutionary group, led by 37-old Lt. Col. Hugo Chavez,
initiates a coup d'etat. The attempt fails, and Chavez is sent to Yare
prison. A second, unrelated golpe also fails nine months later.









1993


March 27, 1994


December 6, 1998

December 15, 1999




July 30, 2000


November 2001



April 8, 2002

April 9-10, 2002


April 11, 2002







April 12-13, 2002





April 14, 2002


December 2, 2002


Perez is suspended from office and later impeached in charges of
corruption. Rafael Caldera splits from COPEI and wins the presidential
election.

Caldera announces government's decision to drop the charges against
Chavez, causing his immediate release.

Chavez (MVR) elected as president with over 56% of the vote.

New constitution, which changes the name of the country to the Bolivarian
Republic of Venezuela, allows the president to be re-elected, and
combines the bicameral legislature into a single National Assembly, is
approved with 72% support.

Chavez wins re-election to a six-year term following the guidelines of the
new constitution.

Chavez announces 49 new laws by decree powers given to him by the
Enabling Law. The new legislation includes the Law of Land and Agrarian
Development, which calls for the elimination of large landholdings.

Chavez announces the dismissal of PDVSA's top executives.

Two-day general strike announced by CTV and Fedecamaras in support of
the ex-PDVSA leaders.

Hundreds of thousands march in Caracas in support of the strike. The
protesters clash with Chavez supporters blocking the path of their march
to Miraflores Palace. Masked pro-Chivez gunmen shoot into the crowd
from bridges and the rooftops of buildings, causing dozens of deaths.
Chavez orders the military to activate Plan Avila and shoot the opposition
protesters. The military's high command refuses, and demands on national
television that Chavez resign.

After Chavez is taken into custody by the armed forces, the military
announces Pedro Carmona as the head of the provisional government.
Carmona announces the dissolution of the National Assembly and the
Supreme Court. The Presidential Guard, still loyal to Chavez, retakes
Miraflores and forces Carmona to announce his resignation.

Chavez returns by military helicopter to Caracas and resumes his
presidency.

Two-month general strike begins. GDP falls by 25% compared to the
same period a year earlier. 18,000 PDVSA employees are fired by Chavez
at the conclusion of the strike.









February 2004



May 2004


August 15, 2004


January 2005


December 4, 2005


December 3, 2006


December 28, 2006


Jan.-Feb. 2007



December 2, 2007



March-July 2008




July 2008

February 15, 2009


December 2009

January 8, 2010


Tasc6n List, which contains signatures of recall referendum supporters, is
compiled on Chavez's orders. The document is used to blacklist
opposition supporters from government and private sector jobs.

Organic Law of the Supreme Tribunal of Justice court-packing law is
passed.

A recall referendum is held to determine if Chavez should be removed
from office, as allowed by the 1999 constitution. The referendum fails
59% to 41%, though accusations of fraud are raised by polling experts.

At the World Social Forum in Porto Alegre, Brazil, Chavez announces for
the first time that he is building "Socialism for the 21st Century."

The opposition boycotts the parliamentary elections, giving Chavez-
aligned parties control of 156 of the National Assembly's 167 seats.

Chavez, gaining nearly 63% of the vote, wins a second six-year term over
opposition challenger Manuel Rosales.

Chavez announces that the government will not renew the over-the-air
broadcasting license of RCTV. The network moves to cable.

Chavez nationalizes the largest telephone and electric companies and
expels foreign oil companies engaged in joint venture projects with the
government.

Chavez's constitutional reform referendum, which would abolish term
limits and implement 68 other reforms, fails; the 51% to 49% margin is
Chavez's first defeat.

Chavez orders the expropriation of a dairy producer, a cold storage firm,
the local operations of three foreign cement manufacturers, the country's
largest iron and steel manufacturer, and the Venezuelan subsidiary of
Banco Santander.

Barrel price of Venezuelan Tia Juana Light oil reaches $137.98.

A redesigned referendum passes with 55% support; term limits for all
public officials are abolished.

Chavez seizes seven private banks.

Chavez announces that the bolivar will be devalued by 100%. A dual
exchange system is also introduced; government officials will decide
which importers will receive the preferential dollar exchange rate.









January 24, 2010


March 22, 2010




March 25, 2010


RCTV is banned from the airwaves one day after refusing to broadcast a
government message.

Opposition leader Oswaldo Alvarez Paz (COPEI) is arrested after stating
in a television interview that Venezuela has become a haven for drug
traffickers, assertions that had earlier been confirmed by international
governmental and non-governmental organizations.

Globovisi6n President Guillermo Zuloaga is arrested after stating at an
Inter-American Press Association meeting that freedom of the press no
longer exists in Venezuela.









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BIOGRAPHICAL SKETCH

David Michael Harmel was born in Columbus, Ohio. He was raised in St. Petersburg,

Florida, and earned the distinction of National Merit Scholar and class valedictorian of Northeast

High School. He attended the University of Florida, where he graduated Phi Beta Kappa and

summa cum laude with a Bachelor of Arts in Economics and Spanish in 2008. While pursuing

his undergraduate education, he studied abroad in Paris, France, and completed an internship at

the U.S. Small Business Administration's Office of International Trade. His undergraduate

honors thesis on the determinants of population change was supervised by Dr. Lawrence Kenny.

In 2008, David enrolled in the Master of Arts in Latin American Studies (MALAS)

program at the University of Florida, where he specialized in Latin American Business

Environment and served as a graduate assistant for Dr. Christopher Birkbeck, Bacardi Family

Eminent Scholar, and Dr. Terry McCoy, Professor Emeritus and Director of the Latin American

Business Environment Program. As a MALAS student, David participated in a Financial

Markets Study Tour in Chile and traveled to Argentina, Colombia, and Uruguay.





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1 THE CAUSES AND EFFECTS OF HUMAN CAPITAL FLIGHT : THE CASE OF VENEZUELA AND FLORIDA By DAVID MICHAEL HARMEL A THESIS PRESENTED TO THE GRADUATE SCHOOL OF THE UNIVERSITY OF FLORIDA IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF ARTS UNIVERSITY OF FLORIDA 2010

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2 2010 David Michael Harmel

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3 To my mom who instilled in me the v alues of honesty and perseverance and encouraged me to broaden my horizons ; and to Liliana who has inspired and supported me every step of the way.

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4 ACKNOWLEDGMENTS Many thanks are due to my supervisory committee. I am especially thankful for the support of my committee chairman, Dr. Terry McCoy, who spent countless hours brainstorming, discussing ideas, and offe ring insight that enabled me to improve the quality of my work. I am also grateful for the wisdom and encouragement imparted by Dr. Efran Barradas and Dr. Andy Naranjo. Lastly, I thank the interviewees for their willingness to discuss the issues that have polarized Venezuela over the course of the last eleven years

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5 TABLE OF CONTENTS page ACKNOWLEDGMENTS ...............................................................................................................4 LIST OF TABLES ...........................................................................................................................8 LIST OF FIGURES .........................................................................................................................9 LIST OF ABBREVIATIONS ........................................................................................................10 ABSTRACT ...................................................................................................................................12 CHAPTER 1 INTRODUCTION ..................................................................................................................13 Overview .................................................................................................................................13 Problem Statement ..................................................................................................................13 Review of the Literature .........................................................................................................14 Causes of a Human Capital Drain ...................................................................................14 Consequences of a Human Capital Drain ........................................................................18 The Entrepreneurial Effect of the Human Capital Drain .................................................23 Significance ............................................................................................................................25 Organization ...........................................................................................................................25 2 CHAVISMO AND ITS ANTECEDENTS .............................................................................27 Forty Years of Punto Fijo .......................................................................................................28 The Presidency of Rmulo Betancourt (19591964) .......................................................29 The Presidencies of Ral Leoni (19641969) and Rafael Caldera (1969 1974) .............30 The First Term of Carlos Andrs Prez (19741979) ......................................................31 The Presidencies of Luis Herrera Campns (1979 1984) and Jaime Lusinchi (19841989) ..................................................................................................................34 The Second Term of Carlos Andrs Prez (19891993) .................................................37 The Second Term of Rafael Caldera (19941999) ..........................................................41 The 1998 Election ............................................................................................................43 The Chvez Era .......................................................................................................................44 Radicalization of the Chvez Regime .............................................................................47 The Events of April 2002 ................................................................................................48 Accusations of U.S. Involvement ....................................................................................50 Back at Home in Miraflores ............................................................................................51 3 THE BUSINESS ENVIRONMENT UNDER CHVEZ ......................................................54 Overview .................................................................................................................................54 Crime and Violence ................................................................................................................55

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6 Steadily Increasing Crime Rates since 1999 ...................................................................56 Lack of Coexistence in a Polarized Society ....................................................................56 Effect on the Business Environment ...............................................................................58 Concentration of Power ..........................................................................................................60 Judicial Involvement in the 2002 and 2004 Crises ..........................................................60 The Implementation of the Organic Law ........................................................................61 Political Discrimination as Government Policy ..............................................................62 Silencing Critics ..............................................................................................................64 Effect on the Business Environment ...............................................................................67 Expropriations .........................................................................................................................68 Nationalization of Private Firms .....................................................................................68 Confiscation of Private Property .....................................................................................70 Effect on the Business Environment ...............................................................................71 Economic Policy .....................................................................................................................71 Reimplementation of Capital Controls ............................................................................73 Reintroduction of Tariffs and Import Quotas ..................................................................75 Choosing to Direct Government Spending Abroad .........................................................76 International Competitiveness ................................................................................................77 Summary .................................................................................................................................79 4 EMIGRATION OF THE VENEZUELAN BUSINESS COMMUNITY ..............................85 Venezuelans in Florida ...........................................................................................................87 Westonzuel a and Doralzuela ...........................................................................................90 Return of the Golden Exiles? ..........................................................................................92 Case Study ..............................................................................................................................96 Evaluation of the Pre Chvez Business Environment .....................................................98 Deterioration of the Business Environment ....................................................................99 The Decision to Emigrate ..............................................................................................101 Effects of Emigration on Venezuela ..............................................................................104 Experiences in Florida ...................................................................................................105 Predictions for the Future of Venezuela ........................................................................107 Summary ...............................................................................................................................108 5 CONCLUSION .....................................................................................................................114 Research Findings .................................................................................................................114 Pre Chvez Business Environment ...............................................................................114 Emigration from Venezuela ..........................................................................................115 Signif icance ..........................................................................................................................116 Limitations and Topics for Future Research ........................................................................117 APPENDIX A INTERVIEW GUIDE ...........................................................................................................119 B TIMELINE OF EVENTS .....................................................................................................120

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7 LIST OF REFERENCES .............................................................................................................124 BIOGRAPHICAL SKETCH .......................................................................................................132

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8 LIST OF TABLES Table page 41 Inequality and the propensity of the highly skilled to emigrate .......................................109 42 Case study participants ....................................................................................................110

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9 LIST OF FIGURES Figure page 31 Weekly spot price of Venezuelan Tia Juana Light oil 19982009 ....................................81 32 Homicides per 100,000 residents 19872008 ....................................................................82 33 Bolivars per dolla r, 1998 2010 (at official rate) ................................................................82 34 Economic freedom in Venezuela, 19952010. ...................................................................83 35 Venezuelas economic freedom compared with the world, in percentiles ........................83 36 Foreign direct investment in Venezuela, 19972008 (in US$ millions) ............................84 41 Location of Venezuelans in the United States by state, 2009 ..........................................111 42 Venezuelans in Florida by county, 2009 ..........................................................................112 43 Venezuelans as a percentage of the total Latino population, selected metro areas .........113

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10 LIST OF ABBREVIATION S AD Democratic Action AN National Assembly Bs bolivars BsF strong bolivars CADIVI Commission for Currency Administration CANTV Nat ional Telephone Company of Venezuela CNE National Electoral Council CONAPRI National Council for Investment Promotion COPEI Political Electoral Independent Organization Committee CTV Workers Confederation of Venezuela CVP Venezuelan Petroleum Corporation DED deferred enforced departure ECLAC Economic Commission for Latin America and the Caribbean ELN National Liberation Army (Colombia) FARC EP Revolutionary Armed Forces of Colombia Peoples Army FONDEMI Fund for Microfinance Development FUS United Social Fund GDP gross domestic product IESA Institute of Higher Administration Studies IMF International Monetary F und ISI import substitution industrialization LOTSJ Organic Law of the Supreme Tribunal of Justice LTDA Law of Land and Agrarian Development MAS Movement toward Socialism

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11 MBR 200 Revolutionary Bolivarian Movement 200 MEP Peoples Electoral Movement MVR Fifth Republic Movement NED National Endowment for Democracy (United States) O EC D Organisation for Economic Cooperation and Development OPEC Organi zation of the Petroleum Exporting Countries PCV Communist Party of Venezuela PDVSA Petrleos de Venezuela, S.A. PODEMOS For Social Democracy (acronym also literally spells we can) PSUV United Socialist Party of Venezuela RCTV Radio Caracas Television SEL A Latin American Economic System SIDOR Orinoco Iron & Steel Corporation TSJ Supreme Tribunal of Justice URD Democratic Republican Union VIO Venezuela Information Office VTV Venezuelan Television Corporation

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12 Abstract of Thesis Presented to the Graduate School of the University of Florida in Partial Fulfillment of the Requirements for the Degree of Master of Arts THE CAUSES AND EFFECTS OF HUMAN CAPITAL FLIGHT: THE CASE OF VENEZUELA AND FLORIDA By David Michael Harmel August 2010 Chair: Terry L. McCoy Major: Latin American Studies This study examines the flow of entrepreneurial human capital from Venezuela to the state of Florida since the election of Hugo Rafael Chvez Fras to the presidency in December 1998. In order to place the lar ge scale migration of the business community in proper historical context, the study analyzes the long term trends that affected Venezuelan economic performance and competitiveness during the pre Chvez Punto Fijo period, which began with the establishment of a power sharing democracy by the Accin Democrtica and COPEI political parties in 1958 and culminated with Chvezs triumph in the December 1998 elections A case study of Venezuelan business professionals residing in Florida and Venezuela was employed to gain a n in depth perspective on the deterioration of the business environment and Venezuelas international competitiveness since 1998. T he interviews present the principal reasons for emigrating, the challenges faced by skilled immigrants upon arrival to Florida, and the consequences that Venezuela is facing as private enterprises close and entrepreneurs flee the country due to the fear of violent crime and political instability Though Venezuelan business professionals in the United States are hopeful that they will succeed in their new professions they recognize that continued human capital flight will leave Venezuela devoid of talent in the future.

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13 CHAPTER 1 INTRODUCTION Overview In 1998, Hugo Rafael Chvez Fras was elected president of Venezuela as the populace sought to bring an end to four decades of a power sharing agreement between the countrys three main political parties. Promising to end corruption and solve the countrys economic problems, Chvez set out on an ambitious course, receiving the approval of the voters to revamp the constitution and the legislature. More than a decade later, Chvez is still the head of state, though the Bolivarian Republic of Venezuelas economic wellbeing is far from secure. As Chvez and his supporters have increased their control, a stream of educated professionals and capital has fled the country in increasing numbers, thus calling into question the future of entrepreneurship in Venezuela. This study seeks to determine the causes and impact of these flows on Venezuela and Florida, the state that receives almost 60% of all Venezuelan migrants to the United St ates (U.S. Census Bureau, 2009). Problem Statement There is an ongoing decades long debate about the net effect of human capital flows from developing to developed nations. The most well known view, of the socalled brain drain, postulates that there is a negative net effect on the sending country, as a nations most intelligent and en terprising citizens are among the first to emigrate. Some scholars have theorized that there are actually related factors that benefit the sending country at levels above and beyond the detrimental results of the migration of educated professionals. I hypothesize that the deteriorating condition of the Venezuelan business environment and the rise of personal insecurity and violent crime have caused a continuing outflow of human capital and entrepreneurial talent a business drain, that will have harmful c onsequences for the well being of the Venezuelan economy in the

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14 long run, though the United States, specifically the state of Florida, will benefit from the influx of well educated members of the business community. Review of the Literature Causes of a Hum an Capital Drain Altimirano Rua (2006: 19) defines transnational migration as a thermometer that measures the distinct levels of political and economic stability and instability of countries. By citing the examples of Peru and Ecuador between 2000 and 2003, when a combined 1.1 million (600,000 Ecuadorians and 500,000 Peruvians) people moved beyond the borders of their respective countries, Altimirano Rua (2006) argues that a strong correlation between a lack of stability, whether economic or political, an d emigration is indeed evident. It is not surprising that political instability can affect the flow of human capital. Castaos Lomnitz et al. (2004) note not only the well known example of Jewish scientists such as Albert Einstein, who fled his country of birth shortly before the onset of World War II, but also the exodus of Spanish Republican intellectuals to Mexico during the Spanish Civil War and the flight of many welleducated citizens of the Southern Cone during that regions domination by brutal military regimes during the Condor years of the 1970s. During that time, the dictatorships made it a priority to target universities and other academic centers for ideological cleansing and to abate sources of internal opposition and criticism, leading Andr s Solimano (2002: 10) of the Economic Commission for Latin America and the Caribbean (ECLAC) to suggest that there could be a direct correlation between the emigration of scientists and intellectuals and the existence of authoritarian regimes that suppre ss civil liberties and curtail academic freedom. Castaos Lomnitz (2004) describes the popular view of emigrating Mexican elites and middle class professionals as engaging in something akin to desertion. Though the term brain

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15 drain or fuga de cerebros has often been associated with scientists and professors, the term, as defined by Dimitris Chorafas in 1970, means the emigration of professionals and high level specialists who are searching for a more favorable environment to advance their career and pr ofessional development, for whom salary incentives are not a decisive factor (Castaos Lomnitz, Rodrguez Sala & Herrera Mrquez 2004: 25). In this way, the brain drain patterns observed do not only apply to highly technical fields; there is a drain of business talent as well. The prevailing notion that the flow of human capital can be predicted solely with national income data is revealed to be false; previous studies have revealed, for example, that in the 1970s British university graduates permanently emigrated at a rate 50% higher than that of their Argentine counterparts despite the higher standards of living that could be found at that time throughout Western Europe ( Castaos Lomnitz, Rodrguez Sala & Herrera Mrquez 2004: 22). Nevertheless, it is s till theorized that salary differentials in professional occupations between the origin and destination countries play a major role. However, Portes (2008: 8) feels that the theory of salary differentials neglects the social context in which such individual calculations are made. Without these necessary factors, wage factors alone cannot predict the flow of skilled labor (Portes, 2008: 8). Alejandro Portes describes the study of international migration as a field where there is a continuous controversy between perspectives that see the outflow not only as a system of underdevelopment but also a cause of its perpetuation, and those that regard migration both as a short term safety valve and a potential long term instrument for growth (Portes, 2008: 7). Al though governments may temporarily slow down the impetus of migration through short term

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16 policy solutions, migrants who bring their families speed up the population outflow, making a return to the home country less likely (Portes, 2008: 7). Portes (2008: 8) criticizes those who group low skilled practitioners of manual labor with what he calls highly trained professionals and technical personnel. Instead, he prefers to analyze the distinct groups separately. The high profile migration of unskilled labore rs from Mexico to the United States, for example, provides an example that somewhat supports the traditional, neoclassical economics based view of migration. That is, that wage differentials provide the impetus for movements (Portes, 2008: 8) Nevertheless social networks are what support migration patterns and the reliability of remittance flows in the long term. These networks link not only migrants with their kin and communities in sending countries; they also link employers in receiving areas to migra nts (Portes 2008: 9). In 2000, it was estimated that 5 % of skilled individuals worldwide would migrate, compared with rates of 5.1% in South America, 16.9% in Central America, 0.9% in North America, and 42 .8% in the Caribbean (Docquier & Marfouk, 2006: 170) The authors note an inverse relationship between population and skilled emigration rate ; educated immigrants leave smaller countries at a rate seven times than large countries (Docquier & Marfouk 2006: 169,172), though in absolute terms those count ries most affected by human capital flight are the worlds highly populated countries. Perhaps most interestingly, immigrants in highincome Organisation for Economic Cooperation and Development ( OECD) nations such as Australia, Canada, Ireland, the Unite d Kingdom, Japan, Spain, and Italy have higher levels of educational attainment than the native born, though this may in part be due to the implementation of point based immigration standards (Docquier & Marfouk, 2006).

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17 At least two works on the Venezuelan brain drain have been published since the 1990s, which certainly has been a turbulent period for the country. The first, published in 1991 by IESA, Venezuelas leading business school, is a compilation of studies that were presented at a symposium dealing with the issue in 1988. Ramn Piango (1991: 12) describes this migration as the result of a frustration, of not perceiving opportunities for the realization of professional aspirations, where the flow of talent is simply a career choice. In this interpretation one who emigrates does so to a country in which he already some contact, whether it be via family, friends, or a professional connection (Piango, 1991: 12). Piango mentions the strong role that the lack of a developed internal labor market has played in influencing emigration, saying that factors such as particularismo (the absence of anti discrimination provisions in private enterprise), the relation between inflation and wages, and the patrimonial nature of private enterprise in Venezuela have combined to block the emergence of a meritocracy in the country (Piango 1991: 19). This situation is said to be mirrored in the public sector, further pushing otherwise qualified workers to leave for better opportunities. The other wo rk, written by Ivn de la Vega, primarily focuses on the emigration of scientists and other professionals in hightech fields. D e la Vega (2005) differentiates between short term worker mobility and migration, which is seen as more permanent. During most of the second half of the 20th century, when Venezuelans were the envy of Latin America, there was little reason to flee the An dean Caribbean nation (Margolis 2009). Jobs and oil were plentiful, in sharp contrast to neighboring Colombia, where unrest and instability caused hundreds of thousands of Colombians to flee across the border to Venezuela in search of a better life in the 1970s alone. It is estimated that even today there are more than a million Colombians residing in

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18 Venezuela, a figure that is equal to the number of Colombians in the United States (Altimirano Rua 2006). The recent trend in emigration away from Venezuela is seen as an aberration, since the 23year large scale wave of immigration that began when democracy was re inaugurated in 1959 and lasted until the onset of the debt crisis in 1982 brought hundreds of thousands of opportunity seeking immigrants into Venezuela from Europe, Asia, and other parts of Latin America (de la Vega, 2005). Piango (1991) and de la Vega (2005) both credit the problems brought on in 19821983, namely the devaluation of the bolvar, the external debt, rampant inflation, the rapid fall in the price of oil, and the resultant recession as the factors that simultaneously ended the inflow of human capital and brou ght about the first human capital outflow from Venezuela. Outflows of human capital may thus be caused by several reasons. Political instability and violence, economic volatility, low perceived future economic prospects, the lack of a meritocratic system of advancement, better educational opportunities abroad, and wage differentials in similar professions can all contribute to an individuals decision to leave his home country. Consequences of a Human Capital Drain The danger of large scale migration flows is that what Solimano (2002: 16) terms the milieu for knowledge generation will disappear, causing the sending country to fall into a phase of stagnation, as the knowledge and know how of entire sectors of the population are irreplaceable in the short term. Still, those that believe that this migration is a permanent and irreversible outflow of human capital are slowly being outnumbered by scholars who believe that the outflow is accompanied by brain circulation, or the return of previous emigrants so that the human capital drain may actually be only a temporary phenomenon (Solimano 2002: 5).

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19 Solimano (2002: 6) believes that the only way to prevent the flow of entrepreneurs and their business aptitude is to reduce red tape and fashion business fri endly economic policies that foster the establishment of small enterprises. If these policy changes do not occur, an emigrant who originally leaves the sending country to obtain a graduate degree, for example, will decide to stay abroad during his w hole productive life (Solimano 2002: 17). Docquier and Marfouk (2006: 151152) note that several studies have found that the prospect of migration may in fact foster human capital formation and growth in sending countries. This would occur because higher inc omes for college educated individuals abroad would signal individuals in the home country to expect increased returns on their investment in the pursuit of higher educational attainment. Docquier and Marfouk (2006) estimate that there are between 1 and 4 m illion educated immigrants, defined as those persons 25 years of age and older with at least a tertiary education living abroad, of which about 90% are living in one of the 30 member nations of the Organi s ation for Economic Cooperation and Development (OE CD). Unfortunately for many graduates of colleges and universities of the developing world, academic success in the home country does not always translate into a skilled job in North America because foreign credentials are often not recognized in the destination country (Kapur & McHale, 2005: 75). Immigrants thus receive a higher return on education acquired in the destination country. Despite the availability of public and private universities throughout the developing world, many students therefore choose to study toward a university degree abroad. For the majority of these students, their destination is the United States or Western Europe. In 2002, for example, there were 1.3 million foreign students studying in OECD countries (Kapur & McHale, 2005) These students have access to some of the best professors and most advanced

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20 facilities anywhere in the world, and the knowledge gained can pay dividends upon return to the host country. However, as Devesh Kapur and John McHale (2002: 32) of the Center f or Global Development state, it is problematic that many students never return, with nonreturn rates especially high for those from poorer countries. The overwhelming majority of graduate students in the United States plan to stay after graduation, regar dless of the political, economic, or social situation in their home country. Still, although the overall percentage of those surveyed who planned to remain was about 70% the rate was much lower for students from two Latin America countries, Brazil and Mex ico. Only 34% and 32% respectively, of the students from those countries expected to stay in the United States (Kapur & McHale, 2005: 35). The prospect of professional migrants returning to the home country hinges on the need for something to return to in the home country (Portes 2008: 16). The positive role of professional migrants abroad in causing change and development in the sending country disappear when there is no institutional structure to harness the talents and skills of the diaspora (Portes 2008: 16). In such a situation, the prospects for positive externalities known as brain circulation are severely limited. Such shortfalls in the structural underpinnings of governmental institutions seem to be more likely to be present in the same developing economies that are the main source countries for skilled emigrants. The new brain gain and brain circulation theories are also critici zed by Maurice Schiff (2006: 203), who feels that the impact of the brain drain on welfare and growth is likely to be significantly smaller, and the likelihood of a negative impact on wealth and growth significantly greater, than reported in that literatu re. He believes that the new brain gain literature ignores the impact of unskilled workers emigrating in search of higher wages, thereby deemphasizing the

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21 importance of higher expected returns from educational attainment (Schiff 2006: 209). Additionally, attention has not been devoted to the topic of risk aversion, which Schiff (2006: 211) states reduces the likelihood for a braindrain induced brain gain. Even if there were more individuals in the home country pursuing gains from institutions of higher education, public expenditures would be affected negatively. The use of state funds for subsidizing tertiary education would increase as more students entered public universities, as Schiff (20 06: 212) explains: Spending additional resources on education means that fewer resources are available for other activities. Education is typically provided publicly and is heavily subsidized, although an important part of the costs is borne by the students or their families, the main cost being the oppo rtunity cost of the students time. As more students forgo or delay employment to undertake university courses, personal income and private consumption will decrease, meaning the government will collect less tax revenue while still being responsible for the vast majori ty of educational costs that fall predominantly on the state (Schiff 20 06: 212). As Schiff (2006) notes, two of the three potential responses to the public expenditure pitfall are not effective solutions. Increasing taxes would reduce disposable income, thereby causing a reduction in the demand for higher education and an expected further reduction in the magnitude of the brain gain. Reducing the states subsidies for tertiary education would have a similar effect: the cost of university attendance would rise significantly, deterring even more members of the lowest socioeconomic classes from pursuing higher education. The third option involves maintaining educational subsidies so that all may continue to benefit educationally, though to achieve this other public expenditures must be cut. Eliminating public health care benefits or transportation subsidies, for example, would cause private expenditures on these services to rise, meaning that for poor families household health is likely to be adversely affected as the nutrition and health status of the family is likely

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22 to suffer as well (Schiff 2006: 213). As Latin Americans who experienced the implementation of the structural adjustment policies of the Washington Consensus could attest, fiscal austerity does not generally breed widespread public approval. Docquier and Marfouk (2006) to determine on a regional basis the fraction of college educated immigrants who were ab le to obtain salaried positions in the United States (zden, 2006: 237). It is determined empirically that ostensibly identical education degrees are not treated equally in the labor market, even if individuals have identical age, experience, and nomina l education (zden 2006: 237). Latin American skilled migrants to the United States have the lowest probability of obtaining skilled jobs. Multivariable regression analysis reveals that this is primarily the result of three variables: lack of English as a common language, lower average tertiary educational expenditures, and political instability, all of which decrease the likelihood of obtaining a skilled job in the United States (zden 2006). Thus, the net effect of human capital flows from developing t o developed countries is disputed: some economists and sociologists feel that positive externalities create a net brain gain for the country sending migrants abroad, while the predominant theory maintains that the sending country is invariably made worse off in the short run and the longrun. Though higher marginal returns from each additional year of schooling may increase educational levels in the sending country, this effect may be offset by the fact that unskilled migrants are also usually able to obt ain higher wages in the receiving country. Additionally, skilled emigrants are unlikely to ever return to the sending country unless significant probusiness policy overhauls occur, meaning that, for all intents and purposes, a migrants choice is irrevers ible.

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23 The Entrepreneurial Effect of the Human Capital Drain Though the predominant brain drain literature has neglected the role that entrepreneurship has played in migration, there are examples of a connection between ethnic diasporas and entrepreneurship (Solimano, 2002: 2122) Some immigrant entrepreneurs, like Hungarian born financier George Soros and Russianborn Google cofounder Sergey Brin, are well known, though thousands of other success stories go unnoticed. In Latin Americ a, immigration from Europe and the Middle East enabled the rapid growth of the textile sector, banking, agriculture, [and] mining sectors in Argentina, Chile, and Brazil in the 19th and early 20th centuries (Solimano 2002: 22). Unlike the scientists and technology professionals commonly identified as central figures in the drain of human capital, an immigrant entrepreneur is prone to risktaking, has a talent for combining capital, labor, and for entertaining a vision of opportunities and the prospects for profits (Solimano 2002: 22). In a 2002 study, Alejandro Portes, Luis Eduardo Guarnizo, and William J. Haller researched the economic adaptation of entrepreneurs among three Latin American immigrant groups living in the United States. Concentrating on the theme of transnationalism, which emphasizes the continuing relations between immigrants and their places of origin and how this back and forth traffic builds complex social fields that straddle national borders (Portes et al. 2002: 279), the author s analyzed data from a 1998 survey of Colombian, Dominican, and Salvadorian immigrants living in the Los Angeles, New York, Providence, and Washington, D.C. metropolitan areas. Those groups were selected for their size, relative anonymity, and diverse back grounds: those from the Dominican Republic are said to have immigrated primarily for economic motives, while Salvadorans in the United States are the product of a civil war that ravaged the country for more than a decade, from 1980 to 1992 (Portes et al., 2002). While both groups are highly clustered, with a large portion of Dominican immigrants residing in the New

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24 York, Boston, and Providence metropolitan areas and Salvadorans concentrated in Washington and Los Angeles, Salvadorans are often said to lack opportunities because their failure to successfully gain political asylum in the United States has led many to toil in low paid menial jobs (Portes et al. 2002: 284). Meanwhile, Colombians immigrated to the United States during the 1980s and 1990s due t o the ongoing political and drug related violence that has characterized the country for decades (Portes et al. 2002: 285). The Colombian immigration differs from the previous two groups in its composition: most migrants have been members of the well ed ucated urban middle and upper classes. They spread across the country, becoming more dispersed than other groups, while the stigma associated with the drug trade and the perennial suspicion that others may be involved led Colombian immigrants to be mor e individualistic and less trusting of the immigrant community atlarge (Portes et al. 2002: 285). Though only about 8% of the survey sample was self employed, that figure represents a percentage of entrepreneurs five times greater than those counted by the [United States] census (Portes et al. 2002: 285). More than half of the self employed were defined as transnational entrepreneurs, who to be classified as such had to travel internationally for business reasons at least twice annually and respond aff irmatively that either: The success of my firm depends on regular contact with foreign countries or The success of my firm depends on regular contact with [Colombia/Dominican Republic/El Salvador, according to respondents country of origin] (Portes et al. 2002: 284). The researchers found that membership in this class is associated with high income, acquisition of U.S. citizenship, and the simultaneous preservation of a number of ties with the home country (Portes et al. 2002: 287288). Colombians had much lower levels of transnationalism among their entrepreneurial class, perhaps because groups who came to the

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25 United States to escape political upheaval and general violence in their home country may have no transnational options, especially if tha t instability continues into the present time, as it has in Colombia (Portes et al. 2002: 288). Portes, Guarnizo, and Heller found that well educated and well connected immigrants are overrepresented in these economic activities, meaning that transnatio nal entrepreneurship is likely not a form of economic adaptation, as had been hypothesized previously (Portes et al., 2002: 290). Still, high levels of education or wealth may induce immigrants to avoid entrepreneurialism altogether, as they may have a bet ter chance of achieving success through a salary based profession (Portes et al. 2002: 293). Significance Given the extent of Venezuelan immigration to Florida over the last dozen years, it appears that both Venezuela and Florida are being affected econo mically. Through interviews with Venezuelan businesspeople who have emigrated to Florida and professionals still residing in Venezuela, along with an analysis of Venezuelas economic performance and decline during the second half of the twentieth century, I seek to determine the cause of Venezuelan entrepreneurial migration during the regime of Hugo Chvez. My research then examines the results of the business drain, thereby contributing to the debate on the net effe ct of human capital migration. Organization This thesis is divided into f ive parts, including this introductory chapter. The second chapter contains a brief historic overview of modern Venezuela, which incorporates the period from the overthrow of the Prez Jimnez military dictatorship in 1958 to the present. The third chapter provides a detailed look at the business environment in Venezuela, how the business environment compares to those of its Latin American counterparts, and how economic, political, and social factors have shaped th e evolution of the Bolivarian business envir onment since Hugo

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26 Chvez Fras election to the presidency in late 1998. From United States Census Bureau data and international and local media coverage it traces the development of Venezuelan communities in the state of Florida. The third chapter introduces a case study of entrepreneurship among Venezuelan immigrants to Florida. It reports the findings of the series of interviews with Venezuelan professionals currently living in the state. The final section anal yzes the evidence gathered and presents an outlook for the future of the environment for private business in Venezuela, in addition to offering potential questions for future research.

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27 CHAPTER 2 CHAVISMO AND ITS ANT ECEDENTS The populist rhetoric employed by Hugo Chvez in his frequent interactions with the Venezuelan masses generally blames the countrys status on the failings of his predecessors, who he identifies as corrupt neoliberals that served as lackeys to the interests of the Venezuelan oligarchy and the United States. Yet, corruption is still rampant in todays Venezuela, though with a different set of beneficiaries. Similarly, the policies favored by the Ch vez government are not a break from the past. Rather, many closely mirror failed policies implemented by leaders of the center left Acci n Democrtica (AD) and the center right Comit de Organizacin Poltica Electoral Independiente (COPEI) during the four decade period that stretched from the inauguration of democracy in 1958 to Chvez s triumph in the 1998 elections Though many Venezuelans look back fondly on the business environment of the pre Ch vez era, the recollections are not entirely accurate. Central planning, land reform, nationalizations, capital controls, price controls, foreign ownership restrictions, high public spending, and an overreliance on the export of hydrocarbons were characteristic of the Venezuelan economy for much during the second half of the twentieth century, when entrepreneurs with political clout influenced the government to protect their inefficient enterprises from international competition (Faria 2008) The country did manage to achieve rapid growth during the 1970s, but by the end of the 1990s real per capita income was at the same levels it was in 1960 (DiJohn, 2009). This chapter explores the course of events that shaped the Venezuelan business environment and enabled Chvez s rise to power. It then highlights the factors responsible for the further deterioration of the business environment under Chvez s le adership. The chapter

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28 concludes with an overview of how Venezuela ranks internationally in terms of international competitiveness. Forty Years of Punto Fijo Though Venezuelas long standing history of democratic rule is often cited (Vanden & Prevost 2009: 236), a closer examination reveals that this was not exactly the case until well into the second half of the twentieth century, after the fall of the dictatorship headed by Marcos P rez Jimnez The inauguration of more than five decades of uninterrupted democratic rule occurred in 1958, when rioting encouraged by the 23rd of January movement ( Movimiento 23 de enero ) forced P rez Jimnez into exile in the Dominican Republic (Caballero 1998) Though the leaders of the movement promised to defend the institutions of democracy, officials of three of the main political parties soon undermined it with a power sharing arrangement (Tarver & Frederick 2006). Signed thirty eight days before the national elections by AD, COPEI, and the less influ ential Unin Republicana Democrtica ( URD), the Pact of Punt o Fijo ensured that under this partidocracia, or nominal democracy controlled by an alliance of the main political parties, power would remain in the hands of a few (DiJohn, 2009). De la Barra and Dello Buono (2009) contend that there was little difference between AD and COPEI. Both were social democratic parties that guarded the interests of the elite while working in close cooperation with multinational corporations (de la Barra & Dello Buono, 2009: 96). Still, after 1958 Venezuelas military stayed out of the political sphere, in contrast with the majority of the other countries of the region, where leaders of the armed forces had unseated democratically elected civilian governments. Though A D and COPEI governed through compromise and shared spoils, the Punto Fijo pact allowed for both freedom of the press and levels of political stability that were uncharacteristic of the region (Sylvia & Danopoulos 2003:

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29 64). In late 1958, free elections brought ADs Rmulo Betancourt to the presidency. Ten years later, the first peaceful transition of power would occur following the election of COPEIs Rafael Caldera (Hellinger 2009). The Presidency of R mulo Betancourt (19591964) R mulo Betancourt was elected as president with cross class support that spanned from the noncommunist left to the urban middle class (DiJohn 2009). Betancourt was not new to the political scene in Venezuela. In fact, he had previously served as president from 1945 to 1948, coming to power via a coup dtat led by AD and the military against Isaas Medina Angarita, who had been president since being indirectly elected by the Venezuelan Congress in 1941 (Caballero 1998: 8485). Betancourt and the coleaders of the 1945 coup followed through on their promise to institute direct elections for the presidency in late 1947, though ADs Rmulo Gallegos, Betancourts successor, was overthrown by a junta led by Prez Jimnez and Carlos Delgado Chalbaud after serving only nine mont hs as president (Caballero 1998: 8586, 94). Remaining the leader of AD while living in exile, Betancourt oversaw the partys integration into Socialist International and, with the party, cultivated a radical and populist image that eventually gained wi despread support. (DiJohn, 2009: 198) As had been the case since oil was first discovered in Lake Maracaibo in 1912 Venezuelan export earnings under Betancourt were heavily dependent on the petroleum industry (Bulmer Thomas 2003). To maximize the coun trys benefit from its reserves, Betancourts administration proposed the creation of an international cartel, known as the Organization of Petroleum Exporting Countries (OPEC), which was founded in 1960 (Faria 2008: 522). In addition, Betancourt decreed the creation of the state owned Venezuelan Petroleum Corporation ( Corporacin Venezolana de Petrleo, or CVP) and blocked foreign oil companies from being granted the rights to new discoveries of oil, thus taking away the incentive for further exploration

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30 (Faria 2008: 522). With the proceeds gained, Betancourt substantially increased government outlays on social programs (Faria 2008: 522). In addition to increased government services for the poor, Betancourt hoped to help the poverty stricken by engineering his economic policies to achieve a more equitable income distribution. Encouraged by the Soviet Unions apparent success, Betancourt created an agency responsible for the central planning of the economy. In a series of actions that would be repeated by a number of his successors, Betancourt devalued the bol var and implemented price and rent controls that wiped out the market for rental dwellings and helped to foster todays slums (Faria 2008: 522). Since AD had agreed with the other parties to limit the spread of radicalism, Betancourt set aside his plans for full scale land reform and instead chose to pursue the redistribution of only the largest of the latifundios (Faria 2008). The government paid market value for the seized land, in the form of 30% cash and 70% long term government bonds (Tarver & Frederick 2006) In 1960, the average Venezuelan worker was more productive on a gross domestic product ( GDP ) per worker basis than counterparts in Switz erland, Canada, and Australia (Faria 2008: 520). Under Prez Jimnez, per capita GD P growth rates had averaged 8.0% between 1950 and 1960. Though Venezuela continued to grow at an annual rate of 6.3% during the 1960s, the policies attributed to Betancourt allowed uncompetitive private firms to survive and played a role in Venezuelas coming economic downturn (Bulmer Thomas 2003: 300; Faria 2008). The Presidencies of Ral Leoni (1964 1969) and Rafael Caldera (19691974) Due to the 1961 constitutions provision that prohibited the president from being reelected, Betancourt ceded the leadership of AD to fellow party founder Ral Leoni, who won the presidential election in December 1963. Leoni stepped up efforts to modernize the economy through import substi tution industrialization (ISI), the policy of establishing import quotas and

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31 high tariff barriers to stimulate the development of infant domestic industries. Venezuelan economist Hugo Faria (2008) argues that the ISI policies pursued under Leoni misallocat ed scarce government resources and allowed labor unions to gain too much influence. Though oil prices during Leonis presidency remained stable, changes to the Law of Hydrocarbons and higher taxes on foreign oil companies allowed the state to increase the benefits derived from the oil reserves (Tarver & Frederick 2006). COPEIs Rafael Caldera took the oath of office in 1969, completing the first peaceful alternation of power between parties in Venezuelan history (Hellinger 2009). Though Caldera was nominally a member of a center right party, his policies further sheltered the Venezuelan economy from abroad by disallowing majority foreign ownership of private companies (Faria 2008). Additionally, Calera pushed through the 1971 Hydrocarbons Reversion Law, which provided that the Venezuelan government would gain control of each oil companys assets at the conclusion of the concessionary period (Tarver & Frederick, 2006). Still, Caldera enabled the possibility of future success by rapidly modernizing the countrys infrastructure and increasing educational expenditures, and inflation remained at low levels, below 2% per year, throughout the terms of both Leoni and Caldera (Tarver & Frederick, 2006). Despite changing laws that increased the tax burden of busines ses and discouraged foreign investment, Venezuela continued to be widely seen as business friendly by the international community because of its relative political stability (Johnson 1978: 173174). The First Term of Carlos Andrs Prez (19741979) Elected to the presidency by a 12 percentage point margin (48.7% to 36.7%) over COPEIs Lorenzo Fernndez and ten other minor party candidates that split 14.6% of the vote in an American style campaign directed by hired political consultants and complete w ith catchy television and radio advertisements, ADs Carlos Andr s Prez moved into Miraflores Palace in

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32 early 1974 just as the price of oil was skyrocketing worldwide during the 1973 oil crisis (Tarver & Frederick 2006; DiJohn, 2009). Oil revenues quadrupled and accounted for 40.8% of gross national income in 1974, P rez s first year in office (Freije 2008: 86). The revenues taken in by the treasury increased significantly, from $3.82 billion in 1973 to $9.95 billion in 1974 (Tarver & Frederick 2006: 125). Spurred on by the increase in oil revenues, P rez launched a series of initiatives that together marked the commencement of a patrimonial government (Faria 2008: 523). His plan, known as La Gran Venezuela, sought to increase the states productive capacity through nationalizations and the creation of strong, vertically integrated state owned enterprises (DiJohn, 2009). P rez implemented more price controls and ended the independence of the central bank, bringing it under state control by purchasing all of the shares controlled by the private sector (Faria 2008). In January 1975, P rez nationalized the iron industry, kicking U.S. Steel and Bethlehem Steel out of the Guayana region (Tarver & Frederick 2006). One year later, P rez nationalized the 19 oil companies operating in Venezuela and combined them with the CVP to found Petr leos de Venezuela, S.A. (PDVSA), the state oil company. P rez recognized that not all Venezuelans were benefitting equally from the oil boom, and thus sought to grant educat ional opportunities to poor and rural residents. He engineered the creation of a scholarship program for Venezuelas underprivileged youth, in order to nationalize the nations human resources (Tarver & Frederick 2006: 127). Though the program was wildl y successful in that regard (75% of the scholarships went to poor residents, and 68% of the beneficiaries lived outside urban areas), the scholarships required that the students study professions related to the iron and oil & gas industries (Tarver & Frede rick 2006). Though the Programa Gran Mariscal de Ayacucho managed to bring about a homegrown, skilled class of

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33 scientists and oil engineers, the program created a dearth of qualified professionals in other areas and reemphasized Venezuelas overreliance o n the petrochemical sector. Though the country could have protected itself from the ever present threat of external economic shocks by emphasizing investment in private enterprise and sectors that were not dependent on the export of primary products, as w ell as by maintaining a rainy day fund for excess fiscal reserves, the administration of Carlos Andr s Prez chose instead to spend extravagantly, thus crowding out private investment (Bulmer Thomas 2003: 340343). Government spending in the five year ter m of P rez exceeded the total sum spent by the state since Venezuela broke off from Gran Colombia in 1830, a period of 143 years (Tarver & Frederick 2006: 125). The surge in commodi ty prices throughout Prezs term allowed the government to attempt to jumpstart domestic industrial production by opening automobile factories and signing jointventure deals with foreign metal producing firms (Bulmer Thomas 2003: 334) During the same period, Venezuela lent $850 million to the Inter American Development Bank, the World Bank, and the International Monetary Fund (Tarver & Frederick, 2006: 125). Foreign exchange earnings had risen considerably ; the unit value of Venezuelan exports was twelve times as large in 1980 as it had been in 1970 (Bulmer Thomas 2003: 332). The gains from the oil boom were widespread; it was said that nearly anyone could afford weekend trips to Miami to purchase the latest fashions, and the phrase t barato, dame dos (its cheap, give me two) became part of the national vocabulary due to the appreciation of the bol var (Mrquez 2003) However, temporary price increases rather than an increase in overall output were responsible, leaving the country vulnerable to a crash in commodity prices and the debt crisis of the 1980s (Bulmer Thomas 2003: 334335). Despite the creation of PDVSA, real GDP per

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34 capita was unchanged in the following years, and the country was only momentarily saved from economic disaster by the spectacular improvement in the [net barter terms of trade] that pushed real gross domestic income up rapidly and gave the temporary illusion of prosperity (Bulmer Thomas 2003: 334) Until the consolidation of the oil industry in PDVSA by P rez t he country had been well known for its businessfriendly attitude, even under the leadership of the center left AD party (BulmerThomas 2003). Even as P rez increased state intervention in the economy to the consternation of some members in AD and accusations of corruption were leveled by the COPEI opposition, that reputation held str ong, perhaps because Prez fairly compensated the foreign oil companies and then contracted their services to provide training and instruction to new PDVSA employees (Tarver & Frederick 2006). Still, by the end of his term AD split into opposing factions of Betancourts old guard and P rez s reformers, and infighting among the party ranks continued unabated for decades (DiJohn, 2009). As Carlos Andrs Prez left office, few could have predicted what would come next. The economy had grown at a faster rate since 1950 than any of its Latin American counterparts, and despite the rapid increase in the price of oil after 1973 Venezuela maintained inflation rates in line with those of the United States (Santos 2003). By all accounts, 1978 was the peak year econo mically speaking for Venezuela. Per capita income and private investment as a percentage of GDP have never again reached the levels attained in 1978, the weakness of the economy has forced the devaluation of the bol var on several occasions, and inflation and unemployment have remained constant problems (Santos 2003). The Presid encies of Luis Herrera Camp ns (19791984) and Jaime Lusinchi (19841989) Luis Herrera Campns, a member of COPEI, was elected by a narrow margin over the AD candidate in December 1978. Among his first acts was to accuse the P rez administration of

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35 corruption for misappropriating public funds. In one instance, the Venezuelan government paid $20 million for a Norwegian vessel known as the Sierra Nevada or $8.1 million more than the actual sticker price; it was later discovered by a congressional committee that the excess sum was distributed to administration officials and that P rez was entirely aware of the overpayment (Tarver & Frederick 2006). In a nother case, Prez was accused of giving millions of dollars to a small group of his most ardent supporters known as the doce apstolos (twelve apostles) in return for their assistance during the 1974 campaign (Tarver & Frederick, 2006). Despite the eviden ce, nothing became of the corruption charges. Even COPEIs congressional officials were unwilling to label P rez as morally and administratively corrupt (Tarver & Frederick 2006: 135). Oil prices continued to rise in 1979 and 1980 as a result of the Ir anian revolution and the onset of a war between neighboring Iraq and Iran (Tarver & Frederick, 2006). Herrera Camp ns removed the price controls implemented by P rez in an effort to stimulate competition among private firms, thus driving consumer prices lower. Instead, more profligate spending by the government caused the external debt to double to $32 billion and inflation soared (Faria 2008; Caballero 1998). As Jonathan DiJohn (2009: 232) states, external debt is normally incurred to finance insufficient savings, current account deficits, and fiscal shortfalls, none of which applied to Venezuela over this period. Debt was not only increasing in Venezuela. The windfall oil revenues, known as Eurodollars, reaped by the OPEC countries in the 1970s were deposited in dollar denominated accounts in banks throughout North America and Europe. As a result, banks needed to loan out this money to maintain profitability. Latin American governments, as well as other sovereign entities throughout the developing wor ld, accepted floating rate loans tied to the London

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36 Interbank Office Rate (LIBOR). The oil shocks of 1973 and 1979 caused output to decline and inflation to skyrocket in the United States. To attack this systemic stagflation, the United States Federal Rese rve Board under the leadership of Paul Volcker increased interest rates rapidly between 1979 and 1981 (DiJohn, 2009). The higher interest rates caused an appreciation of the dollar and, combined with a sharp decline in commodity prices worldwide, made it i ncreasingly difficult for debtor countries to service their obligations. As interest rates and inflation rose, capital began to flee Venezuela, to the tune of $810 billion in 1981. In August 1982, Mexico declared a moratorium on its debt payments; much of the region soon followed. The extent of capital flight from Venezuela reached unprecedented levels during 1982 and the first monthand a half of 1983, when the average sum fleeing the country totaled $500 million weekly (DiJohn, 2009: 237). On February 18, 1983, Herrera Camp ns finally took action. Capital controls were put in place to stem the flow of capital out of the country, and for the first time in 22 years the bol var was devalued, by 40% (Caballero 1998; DiJohn, 2009). Herrera Campns then initi ated a dual exchange rate system, where importers approved by a government agency were allowed to buy dollars at a more favorable rate. Not surprisingly, the Rgimen de Cambio Diferencial (Differential Exchange Regime) became the prime example of corruptio n in the pre Ch vez era, as the agencys officials had free reign to determine who would and who would not receive the preferable rate (Caballero 1998; Tarver & Frederick 2006). For those who had to buy dollars on the black market or at the nonpreferent ial rate, it was in effect a massive devaluation. Economic progress under Herrera Camp ns was nonexistent: unemployment increased to over 20%, and real GDP decreased by 1.2% annually between 1979 and 1983. Though the events of his term were not entirely the fault of Luis Herrera Camp ns a claim made famous by his

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37 declaration that he was receiving a mortgaged country (Caballero 1998: 127), COPEI had lost much of its credibility. The party would not win another presidential election. Jaime Lusinchi an d his AD followers easily won control of the government, though his five year term produced little besides more inflation and more corruption. Inflation rates continued to be persistently high, at an annual average of over 20% during the entire decade (DiJ ohn, 2009: 239). The Lost Decade of the 1980s caused per capita GDP to decline at an annual rate of 3. 4% far worse than the overall Latin American rate of 0.9% per annum during the same time period (Franko, 2007: 69). The flight of capital somewhat slowed, but another devaluation of the bolvar in 1986 and the expansion of the multiple exchange rate system to three rates (for basic imports, other trade, and the money market) ensured that the capital that had been lost w ould not return (Tarver & Frederick, 2006). Daniel Hellinger (2009: 474) writes that: The administration of President Jaime Lusinchi (AD) touched new depths of corruption. Wealthy Venezuelans showed a special fondness for Florida r eal estate and imported w hisky. At the grassroots, petty corruption became a way of life. The Second Term of Carlos Andrs Prez (1989 1993) While still in office, Lusinchi took the strange step of actively campaigning without success against former president Carlos Andr s Prez in AD s primary campaign (Tarver & Frederick 2006). Since per capita income levels had continued to fa ll from their mid 1970s highs, Venezuelans looked back fondly on the successes (and the excesses) of P rez s first term, when he presided over the nationalization of the oil, iron ore, and bauxite industries and the creation of PDVSA. It was widely though that during a potential second term he would reject the neoliberal reforms encouraged by the World Bank and the International Monetary Fund (IMF), two organizations that he disparaged during the 1988 election campaign as genocide workers in the pay of economic totalitarianism and a neutron bomb that killed people, but left buildings standing (Ali 2006). With support for COPEI continuing to falte r, Prez was elected for a

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38 second term with the support of 52.9% of the electorate; COPEIs Eduardo Fernndez finished a distant second, with 40.4% of the votes. Upon taking office in 1989, the newly inaugurated Prez was faced with oil that was selling for less than half of its 1974 price, more than $35 billion in foreign debt, and unsustainable government expenditures (Tarver & Frederick 2006: 140). With a lack of other viable options, Prez took the advice of cabinet members, later known as the IESA B oys for their association with the Instituto de Estudios Superiores de Administracin (IESA), Caracas private free market oriented business school, and chose to implement the economic austerity measures recommended by the IMF ( de la Barra & Dello Buono 2009) The IESA Boys, led by planning minister Miguel Rodr guez, thought Venezuela could follow the path that Chile previously blazed under the economic direction of Pinochets Chicago Boys during the early 1980s (DiJohn, 2009). Thus, Prez was forced to apply the very series of structural adjustment policies that he had railed against in his campaign speeches in order to obtain loans from international financial institutions. The Plan de Ajuste Econmico mandated the devaluation of the bol var and heavily reduced social programs and subsidies for public services and transport. Meanwhile, t he poorest members of Venezuelan society had been abandoning the countryside for more than a decade, fleeing to the outskirts of western Caracas where th ey constructed slums known as ranchos The rapid urbanization was complicating the distribution of clean water and electricity and also was a cause of increasing crime in the cities. T he center of the political spectrum that was occupied by the signatories of the Punto Fijo pact seemed unwilling or unable to cope ef fectively with the new reality (Sylvia & Danopoulos 2003: 65). In protest to the series of policy changes, Venezuelans from all walks of life, but especially the poor, descended on Caracas for a demonstration that the armed forces were ordered to crush. The

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39 result was the Caracazo, the infamous mass riot of February 27, 1989, that left hundreds (or maybe thousands) dead in Caracas at the hands of the military and ushered in an era of political instability and weakness (Hawkins 2003; Tarver & Frederick 2006). Ximena de la Barra and Richard A. Dello Buono (2009: 17) call the violent Caracazo revolt the event that first revealed the upsurge of popular resistance that was gathering, no longer seeking recourse through the discredited political parties that remain dominated by elites. In subsequent months, a general strike took place, more viol ent clashes with the armed forces occurred, and the countrys universities had to be closed after the police killed 10 student demonstrators during a protest (Tarver & Frederick 2006: 143) The events of February 1989 also had a profound effect on a 34year old lieutenant colonel named Hugo Rafael Ch vez Fras Chvez, who with fellow military officers years earlier had covertly formed the subversive Revolutionary Bolivarian Movement 200 (MBR 200) for the purpose of overthrowing P rez and the corrupt puntofijista system, immediately sped up plans for their coup dtat as other car eer members of the armed forces joined their ranks following the governments violent response to the Caracazo (Sylvia & Danopoulos 2003). The attempted golpe de estado that occurred in the early morning hours of February 4, 1992, took place in the context of three years of more economic difficulties for the Venezuelan people. Normally, the removal of price controls as mandated by the P rez administration would have had a pos itive impact on an economy based on the gains from competition. Unfortunately, consumer prices were also increasing by more than 30% annually. Under circumstances of rapid inflation such as that being experienced in Venezuela, consumers are unable to disti nguish between price increases that signal relative scarcity and those that are solely caused by the inflationary environment (Faria 2008: 524).

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40 The coup dtat of February 4, 1992, was nearly successful. All but one of the lieutenant colonels managed to achieve his objectives; Maracaibo, Valencia, and Maracay were captured by the rebel leaders, but Chvez s soldiers failed to control the state television station and the Miraflores presidential palace (Tarver & Frederick 2006) The coup dtat failed t o topple Prez, who had returned to metropolitan Caracas Maiqueta International Airport following the World Economic Summit in Davos, Switzerland, and was en route to Miraflores. After being arrested by armed forces loyal to the elected government, Chve z was incredulously allowed the opportunity to speak before a national television audience in an effort to convince the remaining factions to lay down their arms and prevent further bloodshed (Tarver & Frederick 2006). Standing in front of the cameras and dressed in military fatigues and his red paratroopers beret, Chvez recited a statement of about one minute and ten seconds, parts of which made him a national hero in eyes of many: Friends, lamentably, for now the objectives we considered were not achie ved in the capital city. That is to say, we here in Caracas have not managed to take power. You did it very well over there, but now is the time to avoid more bloodshed. It is time to reflect; new situations will come and the country must definitively get on the path to a better destiny (Chvez Fras, statement to the Venezuelan people, Feb. 4, 1992; http://www.youtube.com/watch?v=VBUopYeVfQ ; translated by author ) The attempted coup and por ahora s peech catapulted Chvez into the national spotlight, and a large portion of Venezuelans surveyed in the aftermath of the failed coup actually expressed support and admiration for Chvez, who they believed was fighting to liberate the country from the corrupt decades long punto fijo power sharing agreement (Tarver & Freder ick, 2006). In the National Assembly, members of COPEI and some AD congressmen refused to condemn the coup; former president Rafael Caldera used the opportunity to attack the corruption and shortcomings of Prez and AD. Nine months later, another coup was attempted when a group of senior military officers unrelated to the MBR 200 bombed military and civilian

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41 installations throughout the country and broadcast an unsuccessful call to arms (Tar ver & Frederick 2006). The second failed coup seemed to signal the end of the road for Carlos Andr s Prez. A week later, regional elections confirmed the end of the two party system as left wing parties La Causa R (Radical Cause) and Movimiento al Socialismo (MAS) gained support despite rising abstention rates (Tarver & Frederick 2006). Although Chvez was imprisoned in Estado Mirandas notorious Yare prison, his influence was becoming greater than that of either main political party. Banding toget her to prevent more social unrest, the National Assembly twice voted across party lines in 1993 to indefinitely suspend and later impeach Prez from the presidency on charges of corruption; they later banned him from ever seeking public office again (Tarve r & Frederick 2006). The Second Term of Rafael Caldera (1994 1999) The 1993 presidential elections occurred with P rez and Chvez both imprisoned. Caldera resigned from COPEI, the party he had created in 1946, after party members unhappy with Calderas manipulative and politically opportunistic rhetoric following the coup of February 4 chose to instead nominate Estado Zulia governor Oswaldo lvarez Paz (Tarver & Frederick 2006: 146). Despite being 77 years old, Caldera quickly managed to organize a coalition of 17 political parties that included the centrist URD party and the three most influential leftwing parties, MAS, the Communist Party of Venezuela (PCV), and the Peoples Electoral Movement (MEP). To gain support from poor Venezuelans who had dema nded the release of Ch vez Caldera campaigned almost entirely on the promise that he would pardon the conspirators of the 1992 coup (Tarver & Frederick, 2006). The ploy was successful; Calderas Convergencia alliance received only 30.5% of the total vote, but was able to outpace ADs Claudio Ferm n (23.6%), lvarez Paz (22.7%), and La Causa Rs Andr s Velsquez (21.9%).

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42 The results of the election indicated an alarming rise in apathy as well as the confirmation that AD and COPEI were no longer national f orces. As recently as the 1988 elections, the two parties had combined to receive 93.3% of the vote. In 1993, that percentage fell by more than half, to 46.3%. Only 60.2% of the electorate voted in December 1993, a fall of 21.7 percentage points from the 81.9% that voted to elect Carlos Andrs Prez in 1988 ( Consejo Nacional Electoral 2006). The country that Caldera inherited in his second term was, like the situation earlier faced by Prez, completely different than the peaceful, prosperous one that he g overned from 1969 to 1974. In 1994, the first year of Calderas term, a severe financial crisis hit the Venezuelan economy. As inflation rose above 40% and the government was forced to repeatedly devalue the bol var several of the countrys largest banks failed (Santos 2003). Once again, controls were put in place to prevent capital from flowing out of the country. Social upheaval continued, and Caldera responded by suspending freedoms guaranteed in the 1961 constitution (Tarver & Frederick 2006). As t he 1998 presidential elections neared, Venezuela was in disarray. Its leader, Caldera, had turned 80 years old in 1996. The economy, long the envy of Venezuelas less prosperous neighbors, fought helplessly against a tide of inflation and oil prices below $10 per barrel. Though economic growth turned positive by the 1990s, the country grew at one of the slowest rates in the region per capita GDP only inc reased at an annual rate of 0.3% (Bulmer Thomas 2003: 383). Over the course of the twenty year period between 1980 and 2000, the percentage of households below the poverty line steadily increased. In 1980, 35% of Latin American households were living in poverty, compared with only 22% in Venezuela. By 2000, a year after Chvez s inauguration, the Venezuelan percent age had doubled to 44% while the Latin

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43 American rate remained constant at 35% (Bulmer Thomas 2003: 387). Real per capita capital endowment in Venezuela, which in 1970 was 30% of the developed country average, fell to 9% by the end of the millennium (Baptista 2003: 65). The period had been so turbulent that historians H. Micheal Tarver and Julia C. Frederick described it as the age of Chaos, Futility, and Incompetence (Tarver & Frederick 2006: 139). The 1998 Election The MVR ( Movimien to Quinta Repblica) party, formed by Chvez and his band of unsatisfied political outsiders were able to capitalize on the inability of AD, COPEI, and civil society to overcome the hardships of the preceding decades (Sanoja, 2009). ADs 1998 candidate, L uis Alfaro Ucero was said to employ a Stalinist approach to party discipline that typif ied all that is wrong with Venezuelas politics ( The Economist 1998a ), while Chvezs two other opponents Henrique Salas Rmer ( Proyecto Venezuela ) and former Mis s Universe Irene S ez (COPEI), did little to differentiate themselves from the failed policies of the previous years. His attacks on the market economy were widely popular among the working class, and even supporters of the free market like The Economist m agazine wrote on various occasions leading up to the election that Chvez is not quite the ogre he is painted as ( The Economist 1998a) and that the fears surrounding Colonel Chvez may be overdone ( The Economist 1998b). The principal theme of Ch v ez s campaign, however, was that he would put an end what he, along with an increasing number of Venezuelans, believed were forty years of failed policies and corruption (Marcano & Barrera Tyszka 2007) Even those who opposed Chvez desired change; yet, t he oppositions candidates seemed unaware of the fact that the country was changing, as none of the three provided a credible platform nor discussed where they stood on the issues (Marcano & Barrera Tyszka, 2007: 18). Days before the election, AD and COP EIs

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44 party leaders scrambled together for one final power sharing hurrah. The party officials decided that they would withdraw their sponsorships of the faltering candidacies of Ucero and S ez and together place their hopes on Salas Rmer In the end, how ever, Venezuelans placed their faith in Chvez to reverse the trends of widespread corruption and economic deterioration that had plagued the country for decades. Chvez, whose platform also called for an increase in the minimum wage and wise spending on windfalls from the vast supplies of oil, received more than 56% of the vote in the December 1998 election. The election of the former paratrooper, who had been denied a visa to visit the United States the previous year and released from prison only three y ears before that, assured the demise of the Punto Fijo Pact and Venezuelas traditional party structure, but it was unclear what would replace them (de la Barra & Dello Buono, 2009). The Chvez Era Promising to end all the corruption that Venezuelan dem ocracy had accumulated during its twentieth century reign, Chvez prepared for office with high approval ratings and even higher hopes (G onzlez de Pacheco, 2003: 339). His approval ratings during the first months of his presidency were astronomical. Eigh t months into his first term, 85% of the populace approved of his performance ( The Economist 1999b). D uring his campaign and first months in office Chvez refrained from using inflammatory rhetoric (de la Barra & Dello Buono 2009). The fears of the wealt hy were downplayed by the Economist Intelligence Unit, who upon Chvezs inauguration had stated that he was appearing statesman like and prudent, wooing business, investors and multilaterals alike (Economist Intelligence Unit, 1999: 7). In a wide rangin g interview with CNN en Espaol that was taped on the eve of the 1998 presidential election, Chvez stated that t he re was no existing tension between him and the private media, that he would not nationalize any private industry or business, and that he would pursue foreign

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45 investment from and friendship with the United States (Primera 2008). Perhaps most perplexingly, he stated unequivocally that Cuba was a dictatorship (Primera 2008) He then told Globovisin: I am not a socialist. I think that todays world, the Latin America of the future, needs a step forward; we are moving away from socialism (Primera 2008). Three weeks before his February 1999 inauguration, The Economist (1999a ) reported that Chvez intended to show his uneasy counterparts and f oreign investors that he is, after all, a man with whom they can safely do business. He was said to be making taking all of the right steps for pragmatism: visiting Argentina and Brazil to discuss Venezuelan inclusion in the Mercosur regional integration and free trade project, jetting through Western Europe and Canada to ease political and business leaders, joining with Colombian leader Andrs Pastrana in Cuba to discuss a resolution to the political turmoil, and even being welcomed to the White House by Bill Clinton ( The Economist 1999a ) Even his choice of cabinet members and ministers was also reassuring, as he allowed the outgoing technocratic finance minister to stay on and included a mix of academics and military officials to serve under him ( The Economist 1999a ). There was not much that the business community and foreign investors could criticize. Chvez had campaigned that reform would be impossible under the same constitution that was carefully constructed by AD and COPEI leaders in 1961. To e nsure success, he and the MVR capitalized on his initial popular support by calling elections for a constituent assembly that would be responsible for drafting the new constitution. Over 90% of the seats in the constituent assembly were won by supporters o f the president (Gott 2005: 144). The Venezuelan public approved the new constitution by popular referendum on December 15, 1999. The constitution extended the presidential term from five to six years, mandated a new presidential election to be held the next year allowed the president the possibility of re election, provided the

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46 option of impeachment via popular referendum, and disbanded the bicameral legislature, both houses of which were under the control of an opposition coalition headed by AD, in favor of a single National Assembly that was to be implemented following the 2000 elections (Tarver & Frederick 2006) Additionally, the country was rebranded with a new name in honor of its founding father, Simn Bolvar. The land that had for 159 years been known as the Republic of Venezuela would henceforth be referred to as the Repblica Bolivariana de Venezuela ( Bolivarian Republic of Venezuela). Interestingly, Chvezs primary rival in the 2000 presidential election was Zulia governor Francisco Arias Cr denas, a fellow graduate of the Academia Militar de Venezuela who had joined Chvezs MBR 200 in 1985 and commanded the battalions that successfully captured the city of Maracaibo during the February 4, 1992, failed coup dtat. Arias was one of Chvez s m any former allies who had turned away from what they perceived to be an increasingly radical, personalistic project (Hawkins 2003: 1143). Despite the highest unemployment in the region and negative economic growth of 7.2% during 1999, Chvez won with 59.8% of the vote, compared with only 37.5% for Arias Crdenas (Hawkins 2003: 1143; Consejo Nacional Electoral 2006) In 2005, Chvez and Arias Crdenas reconciled, and the once again Chavista has since b een designated as Venezuelas Ambassador to the Unit ed Nations and Deputy Foreign Minister for Latin American and the Caribbean. Chvezs MVR party won 91 of the 165 seats in the 2000 parliamentary elections, thereby placing the legislative branch of government firmly instep with the ideals of Chvez and reducing the Punto Fijoera parties to what could be deemed as electoral insignificance (Hawkins 2003: 1142). The composition of the National Assembly has been overwhelmingly

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47 pro Chvez since its inception, in part due to the fact that the opposition pa rties have boycotted some elections, such as the most recent 2005 legislative elections (Tarver & Frederick 2006). Radicalization of the Chvez Regime With an entire six year term ahead of him and the support of the unicameral National Assembly assured Chvez became more and more aggressive toward the middle and upper classes immediately after the 2000 election season, finally reverting to the populist, propoor and anti rich rhetoric that had gained him national attention upon his 1994 release from Ya re. (Tarver & Frederick 2006: 152). After visiting Fidel Castro in Havana numerous times and undertaking a state trip to visit Saddam Hussein in Baghdad (Marcano & Barrera Tyzska 2006), Chvez angered middle and upper class households with his approval of Resolution 259, which intended to rewrite the textbooks of public and private school with praise filled description s of the 1992 coup and the Bolivarian Revolution (Marcano & Barrera Tyzska 2006: 143). Shortly after the 2000 election, the National As sembly passed an Enabling Law, which granted Chvez the right to rule by decree for a oneyear period in order to pass sweeping reforms that might be able to resuscitate the struggling economy (Nelson, 2009). Chvez did not take advantage of his emergency powers until the day the Enabling Law was set to expire; then, in the span of a few hours, Chvez decreed 49 controversial new pieces of legislation that shocked many people, chavista and anti chavista alike (Nelson 2009: 40). Among the new laws announc ed were a tax on all withdrawals from banks, a more progressive tax system, a hydrocarbons law that would direct even more funds from the sale of oil to the state, and a land reform law that would allow the government to expropriate land from private citiz ens; the law was so vague that the government could legally take any land it wanted which it did (Nelson, 2009: 40). Chvez then carried through with threats to nationalize key industries and re duce the control that he claimed oligarchs held over the c ountry (Pars 2003). Fearful of Chvezs threats

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48 to redistribute land and wealth, many of the elite fled the country in search of security in the United States. The Events of April 2002 Chvezs extremely polarizing decision to appoint a new board of dire ctors, made up entirely of Chavistas with no prior oil ba ckground, for PD VSA, the state independent oil company, caused a two month general strike that began in February 2002 and culminated with the stilldisputed events of April 814, 2002, when Chvez wa s removed from office and subsequently restored to power (Nelson 2009) On April 8, Chvez announced on television that several of PDVSAs top executives were to be immediately discharged from their posts. They were to be replaced with officials friendly to the regime (Nelson 2009). The next day, the countrys largest labor union ( Confederacin de Trabajadores de Venezuela or CTV) and chamber of commerce ( Fedecmeras ) joined forces with opposition political parties to hold a protest march that would end at the PDVSA headquarters. The marchers, almost a million Venezuelans, then continue d marching to Miraflores (Nelson 2009). Chvez supporters and elected officials, m eanwhile, had organized a counter protest that blocked the path of the marchers. As the two groups neared, the national guardsmen and proChvez thugs clashed with the protestors blocking side streets and escape routes so that the marchers would be forc ed to continue on Avenida Baralt (Tarver & Frederick, 2006: 152; Nelson 2009: 261). From an overpass known as Puente Llaguno that overlooks the Avenida Baralt march route, Chvez s supporters fired shot after shot at the unarmed protestors, killing more t han a dozen (Nelson, 2009). Instead of allowing the nations private television channels to cover the massacre of the civilians, Chvez began a lengthy speech in order to control the airwaves and prevent the public from finding out about the unfolding eve nts (Tarver & Frederick, 2006). Under Venezuelan law,

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49 all national television stations are required to interrupt their programming whenever the executive wishes to speak to the nation; these broadcasts are termed cadenas (chains) because the video feed ori ginates with the Venezolana de Televisin (VTV) state network and passed on to the private channels Inside Miraflores and surrounded by the protestors, Chvez ordered the military high command to initiate the top secret Plan vila the same plan of actio n that the military used to kill thousands of civilians during the Caracazo (Nelson 2009: 5253). The generals refused to comply (Nelson 2009: 121132). As the evening wore on, the countrys labor and business leaders condemned the actions of Chvez (Nel son 2009: 132). The military commanders soon followed: dozens of high ranking officials announced on national television that they refused to recognize Chvez as the legitimate ruler of the country because the rights of the people as outlined in the constitution had been grossly violated (Nelson, 2009: 133). According to researcher Brian Nelson (2009: 154 155), several generals were able to convince Chvez to resign and accept safe passage to Cuba, an event that Chvez supporters now dispute. In the early morning of April 12, Chvez was taken to Fort Tiuna by General Manuel Rosendo (Nelson, 2009: 158). Pedro Carmona, the president of Fedecmaras was announced as the interim president (Nelson 2009: 158). Yet, Carmonas term in office lasted less than two days. He lost the support of the CTV labor union when he went behind the back of its president, Carlos Ortega, to negotiate with other business leaders (Nelson, 2009: 160161). The militarys support, meanwhile, quickly evaporated when Carmona and his Attorney General appointee, Daniel Romero, announced that they were dissolving the National Assembly and the National Electoral Council, dismissing the Supreme Court, and annulling the Enabling Laws and the 1999 Constitutio n (Nelson, 2009: 196197).

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50 As Chvez supporters took to the streets to protest, General Efran Vsquez Velasco, the head of the army, appeared on Globovisin and listed twelve demands for Carmona, including the restoration of the National Assembly and respect for the countrys institutions, constitution, and elected individuals (Nelson, 2009: 225). Sensing that the tide had turned against him, Carmona fled from the palace just as the Presidential Honor Guard was retaking it from the coup leaders (Nelson, 2009: 226). Hours later Chvez was returned to power by sympathetic members of the military, and the short lived coup was over (Nelson 2009). It does seem somewhat strange that, as Daniel Hellinger (2009) points out, that the two most significant e vents in recent Venezuelan history were failed coups dtat. Accusations of U.S. Involvement Since the failed coup, there have been widespread accusations that the United States had been actively plotting with Venezuelan opposition leaders to overthrow Ch vez since his election in 1998, and that the CIA was responsible for the coup attempt (Nelson, 2009) Through various fronts operated from the U.S. Embassy in Caracas, the Bush administration was accused o f spending at least $30 million for the sole purpos e of destabilizing the democratically elected government of Venezuela (de la Barra & Dello Buono, 2009: 22) The United States position is that it actually warned Chvez over the rumors of the impending coup days before it occurred (Nelson, 2009: 280). Nelson (2009: 281) agrees with the position of the U.S. government, saying that the all consuming focus on the war on terror has meant a complete lack of U.S. policy toward Venezuela. The embassy staff in Caracas had been banned from all me eting s with dissident military officers in the months before the coup (Nelson 2009: 279). It is clear, says Nelson (2009: 282), that the crisis was not a well orchestrated conspiracy led by a few shadowy figures, but instead was a complex and confusing event that was influenced by dozens of self serving actors.

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51 A year after the attempted coup, the Venezuelan government opened the Venezuela Information Office (VIO) in Washington, D.C. in order to swing public opinion in the United States in favor of the Chvez regime (Forero 2004). In one twelve month period, from 2003 to 2004, Chvezs government directed nearly $2 million to the VIO to promote Bolivarian ideals throughout the United States (Forero 2004). Back at Home in Miraflores Though Chvez was once again the head of state, the opposition further destabilized the already volatile situation by calling a general strike in December 2002. Faced with a complete economic shutdown, Chvez instructed the armed forces to seize supermarkets and storehouses and distribute their contents to the poor (Tarver & Frederick, 2006: 153). He then unilaterally fired 18,000 PDVSA employees who had supported the strike, accusing them of corruption and misconduct (Tarver & Frederick 2006: 153). Although courts ordered the immediate reinstatement of the dismissed workers, Chvez and PDVSA s new chief executive simply decided to ignore the courts order (Tarver & Frederick 2006: 153) Chvez has created a system of misiones bolivarianas (Bolivarian missions) that have t he stated goal of eliminating poverty and illiteracy, but opposition advocates claim that they are actually underhanded means of spreading socialism (Tarver & Frederick, 2006: 154). Each of the constantly expanding missions has a specific purpose. For ex ample, Misin Barrio Adentro provides healthcare to impoverished areas ; its clinics are staffed with doctors that the Cuban government sends in return for oil. Misin Mercal has created a system of small socialist markets that enable the poor to purchase a limited selection of foods at prices heavily subsidized by the government. Misin Robinson aims to teach illiterate adults how to read and write. Misin Zamora targets land redistribution, providing government owned rural land and property seized

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52 from pri vate landowners to the poor in order to reduce the over urbanization of Caracas, Maracaibo, and Valencia and increase the domestic food supply. The missions have won Chvez international acclaim and provided support for the popular view that he is an empathetic ruler who deeply cares about those mired in poverty, though Francisco Rodrguez, who served as chief economist of the National Assembly until 2004, claims (2008: 50) that the Chvez is good for the poor hypothesis is inconsistent with the facts. Cristina Marcano and Alberto Barrera Tyszka (2007), meanwhile, believe that the missions are simply another method to help Chvez consolidate his power. The presidency fully controls the purse strings of the missions, the missions operate without being in dependently audited, and participants are given or denied access according to a system of partisan affiliations and loyalty to the government (Marcano & Barrera Tyszka, 2007: 269). Opinions clearly differ on how well the Chvez government is achieving its goal of narrowing the income gap between rich and poor. Tariq Ali, a noted BritishPakistani historian and writer, claims that Ch vez s anti globalization and anti imperialist leanings are a positive force, one that has been the target of a massive di sinformation campaign engineered by The Economist and the Financial Times (Ali 2006). What Chvez really wants, writes Ali, is only to make modest changes to the country's social structure, by using revenues from the sale of oil to fund Bolivarian miss ions that bring about positive gains for Venezuelas most impoverished citizens in the areas of health, education, and housing (Ali 2006). The Bolivarian government has thus, according to Ali, taken care to slowly and cautiously implement social democratic reforms, reminiscent of Roosevelt's New Deal and the policies of the 1945 Labour government, though these efforts at reform were unacceptable in a world dominated by the Washington consensus (Ali 2006)

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53 Despite economic troubles, defections from key allies, and rebukes from international organizations like Amnesty International, Human Rights Watch, Reporters Sans Fronti res an d Socialist International, Hugo Chvez has managed to remain in power for more than eleven years, enough time to become one of Latin Americas leading voices on the world stage. Although Chvez pledged a week before his 1998 election that he would spend only one five year term in power, he has since been reelected twice (in 2000 and 2006) and survived a 2004 recall referendum whose results were questioned in the international community.

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54 CHAPTER 3 THE BUSINESS ENVIRONMENT UNDER CH VEZ Overview F our factor s have precipitated the exodus of the business community from Venezuela during the Chvez era: rising levels of crime and violence, the consolidation of power in the executive branch at the expense of the opposition, fears that the national government woul d expropriate private businesses and seize private property, and the introduction of economic policies that engendered inflation and hampered the ability of firms to freely engage in commerce. The Venezuelan economy under Chvez has been marked by volatili ty despite a decadelong upward trend in the price of crude oil The spot price of a barrel of Venezuelan Tia Juana crude oil rose 1437% during the first decade of Chvezs presidency, from an average of $8.98 per barrel during the week of the 1998 presid ential election to its peak average of $137.98 per barrel in July 2008. Oil prices then turned sharply negative in the midst of the worldwide economic downturn, but have since rebounded to nearly $80 per barrel as of March 2010 (U.S. Energy Information Adm inistration 2010) (Figure 31) The persistently high prices enabled Chvez to lavishly spend revenues received from the sale of oil on a wide array of domestic social missions, as well as on international projects in order to gain influence on the world stage. The volatility across the economic, social, and political spectra have served to prevent the development and expansion of a business sector independent of the mammoth petroleum industry, except for a few isolated success stories that include the development of a nascent shrimp industry that exports over 95% of its production to the United States and Europe (Penfold 2007). More than seven thousand private companies closed in Venezuela between 1998 and 2004 (Oppenheimer 2007: 236), coinciding with a fall in private investment to only 6% of

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55 GDP (Penfold 2007). Many of those firms failed to diversify risk, which they could have done by focusing on exports and cross border operations with nearby countries (Penfold, 2007). Other firms that remained ope n did so by integrating their activities with the oil and gas sector and expanding ties with the Chvez government (Penfold, 2007). Crime and Violence Despite its long standing reputation as the South American continents bastion of democratic and peacef ul rule, Venezuela has become an increasingly violent society. Roberto Briceo Len (2009: 20) has classified the countries of Latin America based on how their murder rates compare with the 2002 world average of 8.8 homicides per 100,000 inhabitants. Argentina, Chile, Costa Rica, Uruguay, and Paraguay have homicide rates below the world average and are classified as low violence countries. Peru, Nicaragua, Ecuador, the Dominican Republic, and Panama comprise the medium violence countries, with homi cide rates up to double the world average. Brazil and Mexico are categorized as high violence as the two countries in the region with a homicide rate more than double but less than triple the world average. Venezuela, along with Colombia, Honduras, and E l Salvador, is classified as a country with very high violence. The situation has deteriorated to the extent that more violent crime takes place in Venezuela than Colombia, despite Colombias ongoing armed conflict and the presence of the Fuerzas Armadas Revolucionarias de Colombia Ejrcito del Pueblo ( Revolutionary Armed Forces of Colombia People's Army or FARC EP ) the Ejrcito de Liberacin Nacional (National Liberation Army, or ELN) and organized paramilitary groups (BriceoLen 2009). Fear of crime accordingly is the main worry throughout the country. In fact, every survey conducted in Venezuela during 2008 concluded that Venezuelans believed that insecurity was the principal problem affecting the countrys residents (BriceoLen 2009).

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56 Steadily Increasing Crime R ates since 1999 In 2007, there were 49 homicides per 100,000 residents in Venezuela, meaning that its citizens were murdered at a rate approximately 6 times the world average ( Briceo Len 2009: 2021) Though there was a marke d increase in number of homicides from 1987 to 1993, when the rate increased from 8 to 21 murders per 100,000 Venezuelans, the rate stabilized between 19 and 22 homicides per 100,000 persons during the period from 1993 to 1998 ( Briceo Len 2009: 31) Since Chvez took office, however, the rate has skyrocketed even during years with high levels of economic growth (Figure 3 2) The homicide rate per hundred thousand inhabitants nearly doubled (from 20 to 38) during the first four years of Chvezs presidenc y alone ( Briceo Len 2009: 31). Between 1998, when Chvez was running for office, and 2007, the number of homicides in the country more than triple d, increasing from 4,550 to 13,157 according to statistics that may underestimate the actual figures; in s ome cases, violent crimes such as homicides are never reported to the authorities (BriceoLen 2009: 2728). Meanwhile, nearly every other country in Latin America either experienced a decrease in the homicide rate or saw its rate remain steady over the course of the preceding decade. Only in Guatemala and El Salvador were there also significant increases in the numbers of homicides per 100,000 residents. Lack of Coexistence in a Polarized S ociety Briceo Len (2009: 30) partially blames the violent crim e problem on the ongoing political crisis and the resulting important breaking off of citizen coexistence under the Chvez regime, but he also asks rhetorically: What other difference can we find in the politics and the social and economic situation of Brazil, Mexico and Venezuela? Better yet, if we were to concentrate on a classic crime explanation that would link homicides, violence and crime to the material social conditions and were to additionally accept as true the official data that affirm that in Venezuela poverty and inequa lity have been reduced, that

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57 unemployment has been reduced and that the populations incomes, consumption, and attention to the poor in terms of health and ed ucation have increased, why, then, in Venezuela has violence and crim e in creased when it should have decreased? (Briceo Len 2009: 30) Briceo Len (2009) claims that the government has paid little to no attention to the problem of violent crime, and instead has provoked more acts of violence by engaging in populist rhet oric that blames the middle and upper classes for the countrys problems. Chvez has supported and developed this social polarization between the chavistas (his supporters) and the esculidos (Chvezs term for the opposition; lit. squalids). The two bla nket groups hold radically different views on society, the meaning of democracy, and politics (Villa r roel 2009) Despite the countless hours that Chvez spent hosting his weekly television program Al Presidente and initiating hundreds of cadenas (chained broadcasts that are required by law to supersede all other television and radio programming in the country), during his first decade in office the president referred to violence and crime only a few fleeting times; in those instance, he only did so to m ake comparisons with Cuba where, in his opinion, there is no crime because there is not the aspiration that foments capitalism (Briceo Len 2009: 31). Less than 3 in 10 Venezuelans approved of how the government is confronting the problem of insecurity and violence, and 54.6% hold little or no confidence in the ability of Chvez to resolve the atmosphere of insecurity (BriceoLen et al. 2009c : 171). Meanwhile, acts of violent crime have been deemed acceptable and heroic by Chvez himself. The president has hailed the April 11, 2002, shooters on Puente Llaguno as heroes by building a monument to commemorate them, and his failed coup dtat of February 4, 1992, that left scores of civilians and military members dead is celebrated as a national holiday with parades, speeches, and celebrations. Chvez even went as far as to proclaim that it was acceptable for poor Venezuelans to rob and steal if they were hungry (BriceoLen 2009: 32)

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58 A 2008 survey conducted by the Venezuelan Observatory of Violence re vealed that 53% of the population felt that the presidents language encouraged the climate of violence and insecurity in the country, while only 18.1% feel that his discourse corresponded to how a head of state should behave (Briceo Len 2009: 34). Leo poldo Lpez, the former mayor of the Chacao municipality located in eastern Caracas, has expressed his view that violent crime in Venezuela is a human rights issue of grave concern, because such crime violates the most fundamental right of human beings -the right to live a free and full life (Lpez 2009) Nevertheless, 93% of murders go unsolved in Venezuela and criminals are free to roam the streets with impunity (Lpez 2009) Effect on the B usiness Environment The problem of crime in the largest cities of the country has significantly transformed the Venezuelan way of life. Residents have ended evening get togethers earlier, changed modes of transportation, and avoided certain zones altogether (Monteferrante 2003). Seventy nine percent of Venezuelans fear being attacked or robbed in their own home, 80.3% are fearful of being attacked or robbed while walking on the streets of their neighborhood during daytime hours, 91.5% fear being attacked or robbed while using modes of public and private transport, and 92.2% fear being attacked or robbed in other parts of the city (Briceo Len, vila & Camardiel 2009a : 133, 137) Fear has truly become a condition of daily life for the Venezuelan populace (Briceo Len et al. 2009a: 130). As levels of fear have increased in step with rates of violent crime, Venezuelans have sought to avoid becoming victims of crime by spending less time in public places, thereby causing a noticeable effect on the economy (BriceoLen et al. 2009b). In addition to eschewing out ings to restaurants, movie theaters, and parks, residents are spending less time interacting with their neighbors, civic networks, and the greater community (BriceoLen et al.

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59 2009b) Over 63% of the population has reduced the number of hours it spends shopping while 43.8% have reduced their working hours in order to avoid being outdoors during the nighttime hours, when the risk of crime victimization is thought to increase (BriceoLen et al. 2009b: 141). Reductions in hours worked represent both a loss of wages for the employee and a loss of production for the employer. Business owners have been forced to devote a significant percentage of revenue to the protection of their company as the likelihood of being a victim of a burglary, robbery, or other property crime has increased. A 2001 study of 200 private firms, 58% of which were classified as small or medium sized businesses, by the National Council for Investment Promotion (CONAPRI) found that 89% of the surveyed businesses used an average of 5% of their gross sales to provide security (Penfold 2002: 33) Some even paid vacunas (slang for bribes; literally vaccines) to groups of criminals or the police Fifty six percent of businesses reported that they had lost an amount equivalent to 3% of gross sales due to vandalism, assault, robbery, arson, or other general delinquency (Penfold 2002: 33) Forty percent reported no lost sales, though this figure included many establishments that were the victims of crime but received compensation from their private insurance providers (Penfold 2002: 33) Half of all business owners and nearly 75% of small and medium enterprises never reported any crime to the police (Penfold 2002: 34) Those business owners that did gained little by calling the police: only 7% of the incidents were resolved (Penfold, 2002: 34). In a survey published in 2002, e ntrepreneurs cited the ubiquity of criminal behavior as a primary factor that makes doing business in Venezuela extrem ely difficult. On a scale of 1 to 5, with 1 signifying that the factor did not complicate business operations at all and 5 signifying that the factor made business much more problematic, the business owners assigned an average

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60 score of 4.3 to crime, robber y, and disorder (Penfold, 2002: 32). The rampant crime that takes place throughout Venezuelas cities has a real effect on the entrepreneurial class. In this situation, all but the burgeoning sector of private security companies are harmed. Concentration of Power The Venezuelan Constitution of 1999 immediately altered the political landscape of the country by enabling the Chvez to use his political capital to create and transform institutions that would give his the president and his MVR supporters to consolidate control over the state and the economy (Oppenheimer 2007). In subsequent years, Chvez consolidated his control over the state through both constitutional and unconstitutional means. Judicial Involvement in the 2002 and 2004 Crises Adherence t o the norms of judicial independence set forth by the United Nations has gradually evaporated during Chvezs tenure. The 1999 Constitution created a new 20member Supreme Tribunal of Justice (TSJ) selected by the Constituent Assembly. The court system to be replaced had been extremely corrupt, like other pre Chvez Venezuelan governmental institutions; in 1998 only 0.8% expressed confidence in the ability and impartiality of the judiciary (Human Rights Watch 2008: 41) Thus, the idea of a new court won the overwhelming backing of all socioeconomic groups (Human Rights Watch, 2008). Until 2004, the Supreme Tribunal was widely regarded as polarized and split between government loyalists and opposition members. Its justices returned key decisions in both the aftermath of the 2002 crisis and the lead up to the 2004 recall referendum. In August 2002, the court decided to the indignation of Chvez that there was not enough evidence to try Generals Efran Vsquez Velasco, Pedro Pereira Olivares, Hctor Ramrez Prez, and Daniel Lino Jos Comisso Urdaneta for their alleged participation in the coup that April. Two years later, the five member electoral chamber of the TSJ overturned the National Electoral Councils ( CNE )

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61 ruling that the recall referendum could not t ake place because 32.3% of the recall petitions 2,708,510 signatures were invalid ( Human Rights Watch 2008: 44) However, the Chavista majority constitutional chamber of the TSJ then overturned the electoral chambers ruling, forcing the opposition to quickly solicit hundreds of thousands of new signatures before the effort to recall Chvez could move forward (Human Rights Watch, 2008: 45). The I mplementation of the Organic Law In response to the lack of unquestioned support Chvez in the TSJ, in May 2004 the National Assembly passed the Organic Law of the Supreme Tribunal of Justice (LOTSJ). The new law packed the court with 12 new justices that could be approved with a simple majority in the National Assembly; the existing 20 justices had to have been selected by two thirds of the AN. The Organic Law also allowed for the appointments of justices to be nullified by a simple majority of the AN if they are determined subjectively to have undermined the courts prestige or operation, thus bypassing the Constitutions requirement that justices can only be impeached with a two thirds majority vote in the National Assembly (Human Rights Watch 2008: 4748). The Organic Law placed the judiciary at the behest of the executive and the legislature, essentially eroding the judicial branchs independence and ability to check and balance the other branches of government. The author of the anti Chvez ruling concerning the 2002 coup dtat was removed by simple majority within a month, and the electoral chamber justices who had ruled against the CNE soon requested their retirement in order to avoid the consequences of the sanction that would be administered by the National Assembly (Human Rights Watch 2008: 52). The twelve new seats and five vacancies were filled carefully with Chvez friendly judges, leading congressman Pedro Carreo to happily exclaim that in the list of potential candidates there is no one who will act against us (Human Rights Watch, 2008: 53).

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62 Control over the courts did not stop at the nati onal level. By law, six members of the T S J comprise a Judicial Commission that is responsible for appointing and dismissing lower level judges. The man appointed as chairman of the commission, Luis Velzquez Alvaray, was a United Socialist Party of Venezuela ( PSUV ) congressman recently appointed by his colleagues in the AN as one of the new T S J justices. The commission dismissed over 400 of the countrys 1732 judges, substituting them in the process with regime friendly replacements (Human Rights Watch 2008: 54). Just over a year later, Velzquez Alvaray was accused of mismanaging millions of dollars in government funds and suspended ( The Economist 2006). Velzquez Alvaray responded by accusing military intelligence of being controlled by drug traffickers and saying that the Palace of Justice should be blown up because of the rampant corruption ( The Economist 2006). Political Discrimination as Government P olicy Although the Venezuelan Constitution of 1999 prohibits political discrimination, opponent s o f Chvez have been blacklisted, sometimes officially, and thereby unable to compete for and win government contracts for their businesses (Human Rights Watch, 2008). In 2003, many Venezuelans opposed to Chvez signed a petition to hold a recall referendum via the process set out in the 1999 Constitution. Immediately, Chvez declared that signatories of the petition would be held accountable for their actions; in his view they were committing treason by signing against the country, rather than Chvez pe rsonally (Human Rights Watch, 2008: 17). It is important to note, however, that signing the recall petition did not signify that the individual was opposed to Chvez; some supporters signed the petition in order to be able to prove via the referendum that support for Chvez was still strong. In early 2004, Chvez ordered the president of the CNE to turn over the petition forms to Luis Tascn, who was serving both in the National

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63 Assembly and as Chvezs campaign manager, supposedly to check for falsified si gnatures (Human Rights Watch 2008: 17). The Lista Tascn (Tascn list) was then posted online by the congressman, where it remained for months despite affirmations from government ministers and the president of PDVSA that they were using the list to determine which employees to hire and which should be fired from their posts (Human Rights Watch 2008: 3031). A former employee of the government agency Fund for Microfinance Development (FONDEMI) revealed to Human Rights Watch (2008: 28) that she had been instructed by her superiors to use the Tascn list to deny loans for small businesses whose owners had signed the recall petition. Similarly, a small cooperative in Nueva Esparta state that had produced school uniforms for the Single Social Fund (FUS) was released from its contract with the government because such contracts could not be awarded to undeserving businesses that have shown their willingness to remove the top leader of the Bolivarian revolution, our President Hugo Rafael Chvez Fras (Human Ri ghts Watch 2008: 28). In April 2004, Tascn himself told the states main radio network, Radio Nacional de Venezuela that he had realized that the list was being used by government officials as a discriminatory tool and had informed Chvez that action should be taken to prevent such use. Chvez did not comment on the issue until April 2005, well after the recall referendum, when he stated that the famous list certainly fulfilled a useful role during the campaign (Human Rights Watch 2008: 18). A more technologically advanced descendent of the Tascn list soon surfaced during the 2005 legislative election season. Government loyalists had created a searchable database of all of the countrys registered voters. The software enabled government offic ials to quickly determine

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64 whether the citizen had, for example, voted in previous elections, participated in the recall efforts, or signed a related counter recall petition. The portability and convenience of the software program enabled it to spread rapid ly throughout the myriad government agencies, even at the state and local levels. Nonpartisan NGOs claimed that functionaries then used the information to deny contracts and services to business owners who supported the opposition (Human Rights Watch 2008). Silencing C ritics The government of Hugo Chvez has asserted its will against both media outlets and individuals hostile to the regime. Although by all accounts the countrys leading media outlets were sympathetic to Chvez during his election campaig n, they soon turned hostile to the Bolivarian government. In order to prevent the views of the opposition from reaching the Venezuelan people during elections seasons, Chvez has taken the same step he did during the April 2002 crisis: rely on the power of the cadena (Oppenheimer 2007). In 2003 and 2004 alone, Chvez called a total of 294 cadenas many of which ate up regularly scheduled radio and television programming for hours (Oppenheimer 2007: 242). Gustavo Cisneros, Venezuelas richest citizen and the owner of the popular Venevisin television network, was one of Chvez s earliest and most ardent supporters. Alberto Muller Rojas, a retired general who broke with Chvez in 2010, confirmed that Cisneros directly provided Chvez with cash in addition t o the benefits he reaped from extended free airtime during the 1998 campaign (Marcano & Barrera Tyszka 2007). However, a disagreement between Cisneros and Chvez over the National Telecommunications Commission caused the two to split, and Venevisin joined with the other national networks to support the opposition throughout the 2002 coup (Marcano & Barrera Tyszka 2007).

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65 Though Chvez proclaimed in early 2004 that Cisneros was a capo actively conspiring against the Bolivarian government, a subsequ ent meeting with Chvez brokered by former U.S. president Jimmy Carter encouraged Cisneros to avoid arrest by moving his family abroad and agreeing that Venevisi n would self censor itself (Marcano & Barrera Tyszka, 2007: 19; Faria 2008: 532). During the 2006 election cycle, analysis of Venevisins programming revealed that it had devoted 84% of its election coverage to Chvez and PSUV, the umbrella party that resulted from the merger of MVR and the other Chavista parties (Romero, 2007). In contrast, opposition candidate Manuel Rosales received only 16% of the networks coverage (Romero, 2007). In 2007, the government revoked the broadcasting license of R adio C aracas de Televisin (RCTV) thereby violating the terms of freedom of speech guaranteed by the Venezuelan Constitution of 1999 (Faria 2008: 531) RCTV, the countrys oldest and most watched broadcasting network, was shut down because of its role in the 2002 coup, when it devoted only half of the screen to the government cadena while simultaneously broadcasting the violence spreading throughout downtown Caracas on the other half of the split screen (Nelson 2009: 73; Human Rights Watch 2008: 67) Perhaps not coincidentally, the network had earlier accused the government of violating the civil rights of the Venezuelan people (Faria, 2008: 531). RCTV simply moved to a cable only broadcasting format, but in January 2010 the network was again shut down, for refus ing to interrupt its programming to broadcast one of Chvezs cadenas as was required by law Because of governmental hostility and regulations, Reporters Without Borders (2009) placed Venezuela 124th in the world in its annual Freedom of the Press rankings. The Bolivarian government has taken action on numerous occasions agai nst political opponents, either by categorizing them as traitors, by accusing them of minor corruption related

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66 crimes to make them politically ineligible, or by imprisoning them. Ral Baduel, a general who played a crucial role in restoring Chvez to the presidency in April 2002 (Nelson, 2009), was arrested less than a year after opposing the proposed 2007 constitutional reforms and distancing himself from the Chvez camp (Baduel 2007) on charges of misappropriating funds. He continues to be held without trial (Human Rights Watch 2010). Also targeted by Chvez was Francisco Usn, a general who broke with Chvez on April 11, 2002, when Chvez ordered the activation of Plan vila (Human Rights Foundation, 2007). Usn, a trained military engineer, was arrested in 2004 for slander for responding to technical questions about how a flamethrower operates (Human Rights Foundation, 2007) in a televised interview after a fire in a punishment cell at a military facility killed two soldiers and severely burned six more. General Us n, who was sentenced to five and a half years in prison, is identified as a political prisoner and prisoner of conscience by the Human Rights Foundation (2007). Oswaldo Alvarez Paz, the 1993 presidential candidate of COPEI, was arrested and imprisoned in March 2010 after stating in an interview that Venezuela was becoming a haven for drug traffickers, a fact that was previously confirmed in reports by several international organizations (de C rdoba & Molinski 2010). Each charge of conspiracy faced by Alvarez Paz carries a maximum sentence of 16 years (Crowe & Lunhow 2010). Days later, the arrest of Guillermo Zuloaga, the head of television network Globovisin, was ordered by pro Chvez attorney general Luisa Ortega, who accused him of spreading false information about Venezuela in a speech to the Inter American Press Association (Crowe & Lunhow 2010). Ironically, the comments that prompted the arrest were: Its impossible to talk about media

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67 freedom in a country where the government uses force to clos e media (Crowe & Lunhow 2010). Additionally, in 2008 Chvez s auditor general banned hundreds of politicians from seeking office due to charges of alleged corruption, though nobody was convicted ( The Economist 2008). The bans were said to be targeting Leopoldo L pez, the popular young opposition mayor of Chacao who could have posed a threat to Chvez in the 2012 presidential elections ( The Economist 2008). Lpez, who at the time of the ban held a thirty point lead over the Chvez backed contender for t he Caracas mayoral race, was forced to abandon his political ambitions (Diehl, 2008). During the 2004 recall referendum, the proChvez electoral authorities were accused of preventing expatriate Venezuelans from voting by any means necessary. In Miami, t here were 50,000 registered Venezuelan voters. Those who came to vote at the consulate on Brickell Avenue were turned away after hours of waiting outside the office building, for the reason that the elevators were out of order (Oppenheimer 2007: 242) B y 2007, Chvezs cult of personality had expanded so much that he claimed that his opponents could not prevent him from being reelected indefinitely, as mandated by the 1999 Venezuelan constitution that Chvez himself created, saying this is a revolution and we came to stay; you cannot replace Picasso while he is painting the Guernica (Primera 2008). One year later, Chvez channeled Louis XIV as he stated succinctly in response to accusations that he was an autocrat: Yo ya no soy yo. Yo soy el pueblo ( Primera 2008). Or, in the words of the Sun King, L tat, c est moi. Effect on the B usiness E nvironment One hundred fifty s ix of the legislative bodys 167 seats were held as of 2009 by the PSUV and its allies; the remaining eleven seats were held by the dissident leftist parties For

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68 Social Democracy (PODEMOS) and the Populist Humanist Front. The AN has not asserted its independence from the executive branch in recent years, and has even granted Chvez the ability to create laws by decree for extended periods of time, thereby completely circumventing the entire legislative branch of the national government. The subservience of both the legislative and judicial branches of government to the executive sharply undermines confidence in the stability of the economy. Expropriations Nationalization of Private Firms Though Chvez repeatedly stated that he would not confiscate the assets of private enterprises (Sylvia & Danopoulos 2003: 69), he has certainly done so since being elected. Furthermore, to compete with the private sector he has ordered the creation of new government owned enterprises such as Conviasa, an airline created in 2004 by an executive order (Faria 2008: 526). From its hub at Simon Bolvar International Airport in Maiqueta, Conviasa operates flights to over a dozen domestic airports as well as Tehran (Iran) and Damascus (Syria). The aftermath of Chvezs reelection i n December 2006 immediately took on a similar tone to the post script of the presidents previous electoral triumphs After the 2004 defeat of the recall movement, for example, Chvez had announced for the first time at the World Social Forum in Porto Aleg re that he was building Socialism for the 21 st Century (Contreras 2007). During 2007, the Chvez government nationalized CANTV, a telecommunications firm, for $1.3 billion; energy suppliers Electricidad de Caracas and CMS Energy for a total of $1 billio n; and the local operations of joint oil ventures with BP, ChevronTexaco, ConocoPhillips, ENI, ExxonMobil, Statoil, and Total for $6.7 billion ( The Economist 2008).

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69 Following the defeat of the constitutional referendum at the ballot box in December 2007, Chvez temporarily took on a more moderate tone by appearing to heed the populaces disapproval of proposed intelligence gathering and educational curriculum laws. To gain back some of the lost confidence of the business community, Chvez pledged that no more nationalizations of private enterprises would take place ( The Economist 2008). Yet, as The Economist (2008) reported months later, with Mr Chvez moderation rarely lasts, and he has now veered left again, by nationalizing firms across a wide arr ay of industries, giving the government a further foothold in construction, manufacturing, and agriculture. In March 2008 the government nationalized the countrys largest producer of dairy products, Lactos Los Andes, for $200 million, as well as Cealco, a manufacturer of freezers and refrigerators, for an undisclosed sum. In April, Chvez ordered the immediate nationalization of the local operations of Cemex (Mexico), Holcim (Switzerland), and Lafarge (French), three giants of the cement industry. The tre nd of nationalization continued in May, when steel manufacturer Siderrgica de Orinoco C.A. ( SIDOR ) was reincorporated into the public sphere for the sum of $1.7 billion only 11 years after being privatized by the government of Rafael Caldera ( The Economist 2008). The banking industry was to be the next target. In July 2008, the Bolivarian government took control of Venezuelas thirdlargest bank (though with compensation as well the express approval of the banks ownership), Banco de Venezuela, a subsidiary of the Spanishowned Banco Santander conglomerate. Following the nationalization of the bank, a professor at Instituto de Estudios Superiores de Administracin (IESA), one of South Americas leading business schools, gloomily predicted I dont think this will be the last bank to end up in state hands, and its going to be happening in other sectors too (Gustavo Garca, in The Economist 2008).

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70 In December 2009, the Chvez government expropriated seven private banks. Chvez then threatened furt her nationalizations in the banking sector: You want me to nationalize the banks? I have no problem with that because the banks dont want to extend credit to the poor (Bandell 2009). Banking regulations, some of which have been imposed by presidential decree, have further limited the outlook for Venezuelan private enterprise by setting interest rates and requiring that at least half of the loans made by banks that remain in private hands are directed toward government designated industries and projects at reduced rates ( The Economist 2008). The most recent targets of the Chvez administration have been firms in the food and beverage industry. In March 2009 the government expropriated the lone rice mill of Cargill, a corporation based in the United State s, as punishment for selling rice for prices above the fixed price ceiling, though Cargill claimed it was selling a type of rice whose price was not regulated by Venezuelan law (Rondon, 2009). Two months later, the government seized Cargills pasta factory for failing to meet the governmentimposed production quota (Daniel 2009). Polar, the nations largest producer of foodstuffs and beer has repeatedly been targeted. Various plants and warehouses operated by Polar and its subsidiaries have been seized by the national and pro Chvez local governments since 2005 (Ixer 2005; Rondon, 2009; Crowe 2010). During the first two months of 2010 the government took possession of the xito and Cada supermarket chains, both of which had been owned by Groupe Casino, a French multinational corporation. The stores have been renamed Bicentenario in honor of Venezuela s bicentennial celebrations (Smith 2010). Confiscation of Private Property As part of the Bolivarian missions project, Chvez proposed the creation of Mi sin Zamora to facilitate the de urbanization of Venezuelas largest cities and the creation of self sustainable agricultural collectives. In 2001, after being granted the right to rule by decree,

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71 Chvez announced the Ley de Tierras y Desarrollo Agrario (L TDA; Law of Land and Agrarian Development ) that expanded on agrarian reforms previously undertaken under the governments of ADs Rmulo Betancourt and Carlos Andrs Prez. The law outlawed the existence of the latifundio defined as any farm covering an ar ea of more than 5,000 hectares (Marcano & Barrera Tyszka 2007). Nevertheless, there were only about 900 such farms among Venezuelas 350,000 to 500,000 units of production at the time of the decree (Marcano & Barrera Tyszka 2007: 147). More controversially, though, were other provisions inserted into the LTDA. The law raised property taxes considerably; some of the revenues would be directed to the missions. Additionally, the state would direct how each private farm would use its resources. I f central planning officials wanted more rice to be produced, for example, they could conceivably order livestock farms to sell off their animals and begin cultivating rice (Marcano & Barrera Tyszka 2007: 146147). This, Chvez proclaimed, would subordinate the possession of land to productivity and national interest with the goal of achieving high levels of agroalimentary self sufficiency (Marcano & Barrera Tyszka, 2007: 146). Effect on the Business Environment The constant threat of having ones life work expropriated without recourse at the whim of a single individual cannot engender confidence in the environment for business, regardless of the growth opportunities that the country may provide. Restrictions on the freedom to set prices and the freedom to choose which goods to produce further harm the private sector, which is already beleaguered from having to compete for market share with the governments heavily subsidized products. Economic Policy Chvez inherited in 1999 an economy beset by failed policies of previous administrations and low oil prices as a result of increasing production throughout the world. Even in the OPEC

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72 cartel, member states were surreptitiously disregarding production quotas that wer e previously agreed upon (Marcano & Barrera Tyszka, 2007). After inviting the OPEC leaders to a conference that was held in Caracas in 2000, Chvez was able to gain assurances from the OPEC leaders that they would abide by new production quotas, so that the limited supply of oil would ensure higher oil prices worldwide (Marcano & Barrera Tyszka, 2007: 165). Double digit growth rates spurred by the rapid increase in the price of oil between 2004 and 2006 slowed in 2007 and 2008 and turned negative by 2009 as commodity prices decreased during the global economic downturn (Rodr guez 2008; ECLAC 2009). Though the introduction of the missions has brought about the internationally accepted view that poverty is being reduced, Venezuelan economist Francisco Rodr guez (2008) claims that there is no evidence that Chvez s policies are helping the poor. Instead, Venezuelas Gini coefficient actually increased from 0.44 to 0.48 in the six years since Chvez took office, meaning that the income gap between rich and po or has grown wider ( Rodrguez 2008: 53). Government spending ballooned from 18.8% of GDP in 1999 to 29.4% of GDP in 2004 as Chvez distributed more than 150 dollars monthly to the unemployed and other low income Venezuelans in advance of the recall referendum (Oppenheimer 2007: 246 ; Rodrguez 2008: 51). A 2007 survey revealed that only 22% of Venezuelans believe that Chvez has reduced poverty, while half believe that his policies have made it worse ( Rodrguez 2008: 56) Despite the expansion of governm ent sector jobs, urban unemployment has increased throughout Chvez s tenure in office, in part because more than 7,000 private firms have closed (Oppenheimer 2007: 236). Additionally, official government human development statistics revealed some worryin g conclusions. Ninety one of every thousand babies were born underweight in 2006, compared with only 84 in the year 1999 (Rodr guez 2008: 53) The

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73 percentage of Venezuelan households without running water increased from 7.2% to 9.4% during the same timesp an, while the percentage of households living in homes with dirt floors increased from 2.5% to 6.8% (Rodr guez 2008: 53) Spending on health, education, and housing, meanwhile, is lower today [2008] than it was in 1992, the last year in office of the ne oliberal administration of Carlos Andrs Prez (Rodr guez 2008: 54). Studies undertaken by Rodr guez and his colleagues at IESA have determined that reductions in infant mortality and illiteracy are not statistically significant from reductions achieved in previous administrations or countries throughout the region (Rodr guez 2008). Chvez s administration has continually pursued an expansionary monetary policy, thereby ensuring that high inflation rates would continue to be the norm in Venezuela (Figu re 33) From 2003 to 2008, real liquidity increased by 218% and real spending increased by 137% (Rodr guez 2008: 57) In 2008, Chvez and the Central Bank announced the introduction of the bolvar fuerte (BsF) a nominally new currency that was actually the same as the old bolvar (Bs) but with three zeros removed. Instead of being pegged at 2147 Bs per dollar, the new official rate would be set at 2.147 BsF per dollar. Venezuelans often continue to quote prices in bolvares ; for example, the black market rate would be expressed as 6,500 Bs/dollar, not 6.50 BsF/dollar. Reimplementation of Capital Controls High oil prices since the turn of the century have masked the extreme economic volatility faced by the non petroleum sector in Venezuela and temporari ly turned attention away from the effects of the governments February 2003 imposition of foreign exchange controls and price controls (Penfold 2007) The controls are said to have been implemented in order to conceal some of the Venezuelan economys stru ctural issues, namely the lack of international

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74 competitiveness for nonoil Venezuelan goods and the fact that government spending was far outstripping revenues (Penfold, 2007). Such controls are not new to Venezuela. R mulo Betancourt introduced price an d exchange controls in 1960 (Guerra 2004: 43). A fixed exchange rate was maintained until February 1983, when Luis Herrera Campns announced a dual rate fixed exchange on Black Friday (Guerra 2004: 43). Though Carlos Andrs Prez allowing the bolvar to float upon taking office in 1989, Rafael Caldera later reintroduced capital controls at the onset of 1994s banking crisis (Guerra 2004: 43). The exchange rate regime was switched to a crawling band in 1996, and Chvez maintained that regime until Februar y 2002, when he instituted a managed float system that lasted for one year, until the reintroduction of capital controls (Guerra 2004: 43). As the legislative elections of September 2010 approached, Chvez announced the devaluation of the bolvar and the reintroduction of the dual fixedrate exchange system that marked the apogee of corruption under COPEIs Luis Herrera Cam pns and ADs Jaime Lusinchi during the 1980s. For most purposes the bolvar suffered a devaluation of 100%, from 2.15 bolvares fuert es (BsF) per dollar to 4.30 BsF per dollar (Lyons & Crowe 2010). However, a special exchange rate for imports of essential items that include food and medicine, at 2.60 BsF per dollar, was announced (Lyons & Crowe 2010). By retaining the extremely over valued essential items rate, Chvez has ensured that domestic production of staples will continue to suffer, because despite the high tariff barriers in place it is still cheaper for firms to import foods at the 2.30 rate than to produce them domestically (Lyons & Crowe 2010) The devaluation allows the government to double its local currency intake from the sale of oil, which occurs in dollars (Oppenheimer 2010). International observers and members of the opposition claim that the devaluation is politically motivated, as it will enable the government to

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75 ramp up social spending in advance of September 2010s legislative elections (Oppenheimer 2010; Lyons & Crowe 2010). Government officials and some international economists, however, point to the fact that devaluation will narrow a growing budget shortfall and make Venezuelan exports more competitive (Lyons & Crowe 2010). Meanwhile, inefficient entrepreneurs again benefit from reduced competition, as importing goods with government approval once again become more expensive (Faria, 2008). A third exchange rate, the parallel rate, represents what Venezuelans pay for a dollar when they are unable to get authorization from the Comisin de Administracin de Divisas (Commission for Currency Administration, or CADIVI) to purchase dollars. At the time of the devaluation, the black market rate hovered between 6 and 7 BsF per dollar (Lyons & Crowe 2010). Reintrodu ction of Tariffs and Import Quotas In order to stimulate domestic production, Chvez has built up tariff walls torn down by previous administrations. Similar to Rmulo Betancourt and Ral Leoni Chvez has made it more difficult for Venezuelans to import all types of goods, including food, clothing, and vehicles, but also high tech devices and industrial inputs like machinery and spare parts that are not produced in Venezuela (Faria 2008). The tariffs, which often exceed 35%, are abused by inefficient en trepreneurs in connivance with government officials (Faria 2008: 526). Consequently, the barriers to trade implemented by the Chvez administration are actually viewed in a positive light by business owners fearful of being harmed by the increased compet ition that trade liberalization would bring (Faria 2008). In addition to protecting uncompetitive entrepreneurs from international competition, import tariffs and quotas distort the equilibrium of the market by raising the price and increasing the scarcit y of consumer products.

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76 Choosing to Direct Government Spending Abroad Instead of directing the windfall revenues to benefit the well being of the Venezuelan peoples economy, Chvez has been generous with Venezuelan government funds, to say the least, in order to gain support and influence on an international scale In 2000, Chvez was accused by Colombian president Andrs Pastranas administration of providing financial support to the Fuerzas Armadas Revolucionarias de Colombia ( Revolutionary Armed Force s of Colombia FARC) (Oppenheimer 2007: 248) Since then, accusations of Chvez s involvement with the FARC guerrillas have not ceased. In 2009, documents retrieved from a computer of deceased FARC commander Ral Reyes revealed that Chvezs relations with the FARC dated to at least 1992, when the guerrilla group provided him with $150,000 for his role in the coup against Carlos Andrs Prez (Lemoine 2009). Chvez is also accused of using oil to gain the political subservience of countries in the regio n (Vargas Llosa 2006). Hundreds of thousands of barrels are sent by Venezuela to Cuba and Bolivia each month at little to no cost, and Chvez even provided low cost heating oil to inner city residents in the northeastern United States (Vargas Llosa 2006; Oppenheimer 2007). For this Vargas Llosa (2006) states: Chvez buys influence through oil. It is a form of blackmail. At OPEC, Chvez fights for increasing prices, making life hard for poor countries that import oil, and then offers those very nations oil subsidies they have no choice but to accept . Chvez is denying his nation its wealth from oil, somewhere between $40 billion and $50 billion a year. He sponsors 30 countries, including some in Africa, in order to buy their vote for a seat at the U.N. Security Council. In total, Chvez spends more than 10% or upwards of $4 billion, of the government budget on foreign expenditures designed to expand his petrodiplomacy (Marcano & Barrera Tyszk a 2007: 223; Vargas Llosa, 2006). These investments would include donations to social welfare projects, solidarity based investments such the purchase of Argentinean debt bonds, the

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77 construction of bridges, the paving of highways, and the injection of ca pital to develop projects in foreign countries (Marcano & Barrera Tyszka, 2007: 223). Meanwhile, as evidenced by the electrical crisis that arose in Venezuela in 2010, domestic infrastructure continues to suffer from outdated equipment and technology. In ternational Competitiveness Currently, the World Bank (2009) ranks Venezuela 177th out of 183 countries in terms of the ease of doing business. Only six African nations fare worse; Cuba is unranked. Colombia, Venezuelas Andean neighbor, is ranked 37th, g ood enough for first place in Latin America. Among Latin American nations with similar per capita income levels, Chile is ranked 49th, Mexico is ranked 51st, Panama is ranked 77th, Uruguay is ranked 114th, and Argentina is ranked 118th, 59 places ahead of Venezuela. The World Bank Doing Business rankings are derived f rom ten distinct categories: starting a business, dealing with construction permits, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts, and closing a business (World Bank, 2009). In terms of processes needed to start a small business of between 10 and 50 employees in Caracas, it was determined that sixteen separate procedures need to be undertaken. These acti vities, which include such steps as registering the business at the Registro Mercantil (local mercantile registry) and undergoing a thorough inspection by the Labor Inspectorate, take an average of 141 days and 24% of per cap ita GDP to complete (World Bank 2009: 67). The Index of Economic Freedom, a collaborative effort by the Wall Street Journal and the conservative Heritage Foundation, places Venezuela 174th out of 179 ranked countries in the 2010 edition of its annual rankings (Figure 3 4, Figure 35) Only Myanmar, Eritrea, Cuba,

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78 Zimbabwe, North Korea are ranked below Venezuelas cumulative score of 37.1 on a scale of zero to one hundred, where scores below fifty are indicative of unfree, repressed economies. Canadas Frasier Institute publishes the Economic Freedom of the World indicators annually. The latest rankings, covering 141 economies and released in 2009, show Venezuela in 138th place, last in the region and ahead of only Angola, Myanmar, and Zimbabwe. Meanwhile, in 2009 Venezuela was ranked 113th out of 133 countries in the World Economic Forums annual Global Competitiveness Report. Competitiveness is defined in this context as as the set of institutions, policies, and factors that determine the level of productivity of a country (World E conomic Forum, 2009: 4). Twelve separate pillars of competitiveness comprise each countrys score. Venezuelan institutions and labor market efficiency are currently classified as the worst in the world, while goods market efficiency and business sophisti cation have the dishonor of being ranked only one rung from the bottom (World Economic Forum, 2009: 324). Each pillar, meanwhile, is divided into as many as 19 subpillars that are also ranked according to a grading system. These sub pillars are then cla ssified as either competitive advantages or competitive disadvantages. Of the 110 total subpillars identified in the 2009 report, 104 of the factors are categorized as competitive disadvantages. Seventy three of those subpillars are ranked below 100t h, and 26 are ranked 130th or below. Venezuela is determined to be one of the two worst countries in the world in terms of property rights, intellectual property protection, diversion of public funds, judicial independence, favoritism in decisions of gover nment officials, wastefulness of government spending, burden of government regulation, efficiency of legal framework in settling disputes, efficiency of legal framework in challenging regulations, transparency of government policymaking, reliability of pol ice services, agricultural policy costs, business impact of rules on foreign direct investment burden of customs

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79 procedures, degree of customer orientation, cooperation in labor employee relations, hiring and firing practices, restriction of capital flows local supplier quantity, state of cluster development, nature of competitive advantage, and value chai n breadth (World Economic Forum 2009: 325). For Venezuela, o nly six competitive advantages are identified. Two advantages, national savings rate and g overnment debt, fall under the macroeconomic stability pillar, but they are overshadowed by the spiraling inflationary tendencies that will be discussed later in this chapter. Life expectancy, tertiary enrollment, and the domestic and foreign market size i ndices are also considered to be advantages for Venezuela (World Economic Forum 2009: 325). The Venezuelan business owners surveyed most frequently mentioned foreign currency restrictions and the lack of policy stability as their top concerns, though the inefficiency of the government bureaucracy, labor restrictions, inflation, corruption, access to financing, and crime and theft were all named among the most problematic factors for doing business in the country by at least 5% of the surveyed entrepreneurs (World Ec onomic Forum 2009: 324). A Swiss research institution, IMD International Business School, compiles the annual World Competitiveness Yearbook. The rankings place 57 economies in order of their competiveness, which is based on criteria that include economic performance, government efficiency, business efficiency, and infrastructure. The 2009 rankings placed Venezuela last among the 57 nat ions with a score of 39.060 (International Institute for Management Development, 2009). Summary The facto rs described in this chapter combined to weaken the business environment and limit the effectiveness and potential of the Venezuelan economy during the first decade of the 21st century. Instead of reducing poverty, narrowing the income gap, and encouraging the development of diverse private enterprise, the actions (or lack of action, in the arena of crime and

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80 violence undertaken) by the government of Hugo Chvez discouraged investment (Figure 3 6) and innovation and created a more polarized society. The rea lity of Venezuela is perhaps best captured by IESA professor Hugo Faria (2008: 525): Venezuelans lack the right to earn payments in a hard currenc y, to pay low taxes, to spend their income on the cheapest goods produced in any part of the world, to convert the fruits of their labor into any currency t hey wish, to pursue work and ownership in any activity deemed legal, to charge as sellers w hatever price they consider suitable for goods and services, to charge as bankers the interest rate of their liking and to extend or deny credit to anyone as they consider appropriate, to contract freely in the labor market, and to have their right s safeguarded by a well functioning judicial system that protects private property rights and punishes violator s of these rights Though Hugo Chvez and the PSUV do not deserve all of the blame for the state of the Venezuelan economy in the early 21st century, they failed to rectify the misdeeds of previous governments and in many cases further weakened the busine ss environment. The promises that Chvez made while campaigning as a political outsider never came to fruition. Corruption has not abated; instead, it has become more rampant. Political discrimination ensures that those friendly to the regime will occupy g overnment posts at all levels, and the absence of judicial independence eliminates the possibility of a fair trial. The implementation of capital controls, rampant inflation caused by government spending, lack of central bank autonomy, and fear of expropri ation have prevented the emergence of a vibrant nonoil private sector. It is therefore unsurprising that many Venezuelans would choose to look internationally for opportunity, security, and prosperity.

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81 Figure 3 1. Weekly spot price FOB in dollars per barrel, Venezuelan Tia Juana Light, 19982009. Source: U.S. Energy Information Administration, 2010.

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82 Figure 3 2. Homicides per 100,000 residents. Venezuela, 19872008. Source: Brice oLe n, 2009. Figure 3 3. Bolivars per dollar, 19982010 (at offici al rate). Source: Datastream.

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83 Figure 3 4. Economic f reedom in Venezuela, 1995 2010. Higher scores indicate higher levels of economic freedom. Source: The Heritage Foundation, 2010. Figure 3 5. Venezuelas economic freedom compared with the world, in pe rcentiles. Value indicates that Venezuela has a higher level of freedom than that percentage of countries, as of the report year. Higher values are preferred. Source: The Heritage Foundation, 2010.

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84 Figure 3 6. Foreign direct i nvestment in Venezuela, 19972008 (in US$ millions). Source: ECLAC 2009.

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85 CHAPTER 4 EMIGRATION OF THE VE NEZUELAN BUSINESS COMMUNITY Since the rise to power of Hugo Chvez, there has been a large net population outflow from Venezuela. As the political and economic stability of Venezuela has decreased, more than one million Venezuelans have fled to more stable surroundings (Margolis 2009). Like Colombia in the 1980s and 1990s, Venezuela is a country greatly affected by the levels of emigration caused by violence and political upheaval (Kapur & McHale, 2005). Venezuelan migrs are said to be looking for prosperity and business opportunities, in addition to searching out safe havens from the insecurity and instability present throughout the country (Penzini Lpez 2004). The hig hly skilled of Venezuela have the highest propensity to emigrate in the world, with a brain drain score of 8.31 on a scale of zero to ten (Table 41). A September 2002 survey of Venezuelan households conducted by the Datanlisis polling firm found that 4 1.9% of Venezuelans were ready to emigrate, an 8.1 percentage point increase over the results received from a corresponding survey two years earlier. The survey was conducted months before the general strike that paralyzed the Venezuelan economy in the fou rth quarter of 2002 and the first quarter of 2003; by the time that El Nacional reported on the survey in December 2002, the percentage of Venezuelans wanting to leave was surmised to have increased even more (Sayago 2002). Though the Datanlisis survey w as conducted more than seven years ago, it is still important to analyze the results. Although identical conclusions may not be reached if a similar survey were conducted today, the issues central to emigration in 2002 are just as valid for discussion in 2010. The study determined that the primary factors influencing a desire to emigrate were the practically null opportunities of economic progress (a situation made more and more severe by rampant unemployment) and the problems of personal security (Sayago, 2002). The young were

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86 the group with the greatest desire to leave the survey. Fifty percent of those between the ages of 15 and 24 expressed their willingness to emigrate. As age increased, the readiness to leave decreased. Members of the middle class, key bastions of society and the last that any nation wants to lose, for they contribute fundamentally to economic and social progress, were most affected and most willing to leave Venezuela (Sayago 2002). Still, portions of all social strata felt that it was necessary to leave. For the upper classes (members of the A and B socioeconomic strata), feelings of personal insecurity outweigh economic worries. One respondent said that Im doing well in the economic sphere despite Chvez, but I feel that I am risking my life and the lives of my family (Sayago 2002). They complained of the ongoing economic crisis, the fall in living standards, and the rise in poverty that accompanied the first years of the Chvez mandate. All of these factors, they said, ha d augmented the wave of violent crime that was so greatly affected the large cities of the country. The salaries found in professional positions were no longer enough to justify remaining in one of the worlds most dangerous countries, while it was undergoing such a rapid descent into uncontrolled violence (Sayago, 2002). Even as Chvezs government claimed it was increasing equality and opportunities for the poorest socioeconomic strata, Venezuelans at the bottom of the pyramid saw the lack of economic opportunity as their primary motivating factor for emigration. Though members of the D and E groups overwhelmingly support PSUV and Chvez, who frequently rails against capitalism and el imperio they felt that they do not have an alternative, but everyone who leaves for the United States has one because that is a country of opportunity for everybody, citing Venezuelan baseball stars Omar Visquel and Andrs Galarraga and model Patricia Velsquez as examples of pure luck associated with the act of going specifically to the United

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87 States, not with any time of personal effort (Sayago, 2002). Like Chvez, they blamed the rich (or the oligarchy using the popular Chavista terminology) for the situation of the country, thereby justifying one persons view that there is nothing wrong with robbing those who have robbed us (Sayago, 2002). Though members of the poorest socioeconomic groups also desire to leave the country, Venezuelan emigration occurs primarily among people with the highest levels of educational attainment and social status, in contrast with migration patterns of other Latin American countries (Sayago, 2002). Internationally, the concern about this intense, rapid migration centers on the idea of a Bolivarian brain drain gutting universities and t hink tanks, crippling industries and hastening the economic disarray that threatens to destroy the country (Margolis 2009). A recent report by the Sistema Econmico Latinoamericano (Latin American Economic System, SELA) revealed that the emigration of highly skilled Venezuelan professionals to member states of the OECD increased by 216% between 1990 and 2007 (Margolis 2009). Venezuelas onceburgeoning scientific research sector is also floundering: 9,000 Venezuelan scientists are employed in the Unite d States alone, compared with only 6,000 in Venezuela (Margolis 2009). More than 7,000 private businesses closed between 1999 and 2004 as their owners fled the country for opportunity abroad (Oppenheimer 2007). For many Venezuelans, their favored destina tion lies only a few hours by plane to the north. Venezuelans in Florida The United States has long been a choice destination for Latin Americans because of the countrys wealth and promise of opportunity, but also for its political stability and proximit y to the Latin American region. Floridas proximity to Venezuela certainly helps. Multiple non stop daily flights from Miami to Caracas, Maracaibo, and Valencia permit Venezuelans to return home to conduct business or visit relatives in less than four hour s. Short one stop connections to

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88 Floridas other major airports in Tampa and Orlando add only about an hour to that journey, making it possible to enjoy lunch in Central Florida and dinner in Caracas. According to a 2004 opinion piece published in El Naci onal one of Venezuelas leading newspapers, Venezuelans often choose to relocate to the Miami for business and linguistic reasons (Penzini Lpez 2004). Although Venezuelans of direct southern European descent are able to easily obtain Portuguese, Italian, or Spanish work visas valid for use throughout the European Union, the four and a half to six and a half hour time difference between the Old Co ntinent and Venezuela complicates multinational business operations (Penzini Lpez 2004). In order to obtain a business visa, t he United States immigration laws require that foreign entrepreneurs maintain a parent company in the country of origin, and the short distance between the Southeast and Venezuela enables business owners to operate their companies almost effortlessly (Penzini Lpez 2004). The 1990 United States Census identified only 47,997 people of Venezuelans residing within the 50 states; th at figure increased by 100.2%, to 96,091, by the 2000 decennial U.S. Census (U.S. Census Bureau, 2009). Between 2000 and 2008, the Venezuelan population more than doubled again, according to the Census Bureaus conservative estimates (U.S. Census Bureau 2009). Of the estimated 210,000 Venezuelans in the United States at the time of the 2008 American Community Survey, about 60% live in the state of Florida (U.S. Census Bureau, 2009) (Figure 4 1) A total of 35% of the nationwide figure resided in two Florida counties, Broward and Miami Dade, though sizeable groups had also relocated to the Orlando, Tampa Bay, and Jacksonville metropolitan areas (U.S. Census Bureau, 2009) (Figure 4 2, Figure 43) According to U.S. Census Bureau statistics, Venezuelans are not as highly concentrated in the Miami area as was expected based on worldwide reports in daily newspapers. Broward and

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89 MiamiDade counties are home to 34.6% of the nations Venezuelan population, compared with 54.4% of the nations Cuban population and 35.6% of the nations Nicaraguan population (U.S. Census Bureau, 2009). If one thing is certain about the Venezuelan population in Florida, it is that nobody knows with any certainty how many Venezuelans there are. Altamirano Rua (2006) postulated that 150,000 college educated Venezuelans had emigrated since the events of April 11 14, 2002. MercoPress (2007) estimated in 2007 that 300,000 of the 1.5 million Venezuelans living overseas resided in Florida. El Nacional calculated that there were 500,000 Venezuel ans living in the United States in 2004, including 200,000 in the Miami Ft. Lauderdale area. Of those, the majority is said to have arrived after 2002, in response to ever increasing political and social tensions. S ome Venezuelans prefer not to register at the Chav ista controlled consulates; others who were admitted to the United States on tourist visas may fear that they will be reported to immigration authorities for overstaying the maximum trip duration. Thus, there is a lack of reliable statistics avail able from the consulates Accordingly, only 15,000 Venezuelans were registered at the Miami Consulate General at the time of the 2004 recall election (Penzini Lpez 2004). Originally, the majority of Floridas first Venezuelan exiles were young single pr ofessionals, but increasing levels of violence throughout the country, especially in Caracas, have caused more families to move overseas to provide safety for their children (MercoPress, 2007). Now, almost all Venezuelans arrive as family units, though the household heads are still young members of the professional class (Alconada Mon 2007). Many had previous contact with the state, either through vacation, family connections, or educational experience.

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90 As was the case with the migration of the first Cuban immigrants to South Florida following the Cuban Revolution, the Venezuelan migration is a largely upper and upper middle class phenomenon. Fifty one percent of Venezuelans in the U.S. hold a bachelors or advanced degree, a figure that outpaces all other Hispanic/Latino groups and nearly double s the 27.7% attainment of the general U.S. population (U.S. Census Bureau, 2009). It is no secret that many Venezuelans in Florida are well off and that the United States is a paradise for those who have money and are able to obtain visas (Fernndez 2008). The New York Times reported in 2008 that the arrival of Venezuelan migrants has been a boon for the business of banks in the Miami area (Semple 2008). The capital flight numbers in the billions of dollars, conf irming the interesting philosophy of Miamiarea banks that when Latin America is doing well, we are doing well. When Latin America is doing badly, we are doing well (Semple 2008) Despite the efforts of Chvez to impose controls to prevent the exodus of dollars, departing Venezuelans have managed to work around these restrictions through various maneuvers (Katz 2007). Though many, including the thousands of Petrleos de Venezuela, S.A. (PDVSA) technicians and engineers fired during the 20022003 general strike, are unable to continue in their previous professions, they have started anew by using their expertise and entrepreneurial talent to succeed in the United States (Abba d y 2006; Miller 2010). Westonzuela and Doralzuela Since Hugo Chvez was first elected in late 1998, many Venezuelans have moved to the MiamiFt. Lauderdale suburbs of Weston and Doral, two communities that have become so well known for their Vene zuelan populations that they are frequently referred to as Westonzuela and Doralzuela (Semple 2008). Weston is a planned community of 65,753 residents (U.S. Census Bureau, 2009). Hemmed in on the north and west by the Florida Everglades and on the south a nd east by the sprawl of suburban Fort Lauderdale, Weston has become home for many of

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91 the artists, lawyers, phys icians, managers, and engineers leaving the country [of Venezuela] by droves (Margolis 2009). The city of Weston, which also boasts one of the nations largest Colombian communities, has a lower percentage of its residents living in poverty than any other city of similar size in the United States (Grech 2007). Further to the south, just west of Miami International Airport in MiamiDade C ounty, l ies the census designated place of Doral, which had an estimated population of 39,011 in 2008, 74.5% of which speak Spanish as a first language (U.S. Census Bureau, 2009). Today, Venezuelans are the largest Hispanic/Latino group in both Doral and Weston, according to the United States Census Bureaus American Community Survey (U.S. Census Bureau 2009). The most recent estimates reveal that 18.1% of Dorals 39,011 residents are of Venezuelan ancestry, compared with 11.4% of Westons 65,753 residents (U.S. Census Bureau, 2009). In Doral, a survey administered by the citys planning department determined that 17% of employees of local businesses were born in Venezuela, a figure which ranked second to Cubas 31% but outpaced that of the United States, at 7% (City of Doral, 2008: 21). Both locales are filled not only with restaurants serving arepas cachapas and other Venezuelan dishes, but also the American offshoot of a famous Caracas beauty school, a low cost medical clinic for Venezuelan immigrants without health insurance, and several Venezuelan American business organizations (Grech, 2007). At least five newspapers for the Venezuelan community are being published, and the introduction of an anti Chvez radio station calls to mind the Miami Cuban c ommunity s anti Castro radio broadcasts (Semple 2008). A typical issue of the Venezuela Al Da or El Venezolano weekly editions is filled with the latest news from Venezuela, anti Ch vez editorials, and dozens of advertisements. Heavily represented among the advertisements are Venezuelan owned import export enterprises, but also

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92 Venezuelan restaurants, Venezuelan shops, and the offices of Venezuelan doctors and lawyers. Another full page ad announces a Franchise Expo that franchisers have targeted to the Venezuelan community. Winn Dixie, a supermarket chain, purchased a half page advertisement in a December 2009 issue of Venezuela Al D a to announce that hallacas tamales wrapped in pl antain leaves that serve as the traditional holiday season food in Venezuela, had arrived and were available for purchase ( Venezuela Al D a 12/18/2009 issue, p. 12). Return of the Golden Exiles? On a warm Saturday morning in early 2003, thousands of Cubans and Venezuelans gathered in the streets to celebrate and to protest. The scores of marchers could have just as easily been protesting the foreign policy of the United States in Havanas Plaza de la Revolucin or the Avenida Libertador of Caracas. Instead they had congregated on Calle Ocho in Miami as exiles participating in a Mega March organized by the entrenched Cuban American community to denounce the political activities of Hugo Chvez. Leaders of local organizations like the Junta Patritica Cubana threw their support behind the event, which featured the opposition mayor of Caracas and two Venezuelans who had been crowned Miss Universe and another who been crowned Miss World, to express their backing for democracy in a parallel alliance against di ctators with a military base (Elliott, 2003). Those interviewed expressed their desire to help the Venezuelan people avoid Cubas fate: the loss of democratic rule (Elliott, 2003). Florida International Universitys Eduardo Gamarra, the director of the university s Latin American and Caribbean Center, commented that there was an overwhelming sense that the revolution in Venezuela [was] going through a similar stage of where th e Cubans were in 1959, when the Cuban middle and upper classes that would becom e known as the Golden Exiles fled Fidel Castro to establish a new life in Miami (Elliott, 2003).

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93 Castro and his self proclaimed protg, Hugo Chvez, have indeed become fast friends in recent years as they seek to extol the virtues of their political ide ology. Thus, it is convenient to compare the first groups of migrants to flee their regimes for the security of the Floridian peninsula. The groups share many similarities, such as income levels and professional class, which are easily noticeable. Nevertheless, it is wrong to assume that immigrants from Venezuela during the Chvez era are carbon copies of their Cuban predecessors. It is highly unlikely that the Venezuelans, nor any other group of immigrants, will again be the beneficiaries of the unique set of circumstances that allowed CubanAmericans to become the Golden Exiles. Nevertheless, the international media has repeatedly made the assumption that Venezuelans in Florida, as well educated Latinos fleeing a left leaning regime, are following in the f ootsteps of Castroera Cuban immigrants to the state. Articles about Venezuelan immigration to the United States say that Latin America has seen this story played out before (Margolis 2009), that Cuba and Venezuela have parallel lives (Fernndez 2008), and that the influx of Venezuelans represents an exodus equal to that experienced by Cuba in the 1960s (MercoPress 2007; Semple 2008). Despite parallels such as the class composition of the two groups of exiles and similar location preferences, there ar e significant differences between Cuban exiles of the 1960s and Venezuelan migrants in the Chvez era, in terms of U.S. government policy, the international geopolitical structure, the demographics of their destination region, and contact with their homela nd. When the first Castro era exiles arrived to South Florida half a century ago, they found a sleepy Anglo resort town devoid of any experience with immigrants from Latin American and content to serve as a suburb of its larger neighbor, Miami Beach (Alberts 2006: 138). It was a

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94 quintessentially Southern city, a slow moving place that survived simply by catering to the needs of the many snowbird retirees from the northern United States (Grenier & Prez 2003). Almost overnight, the culmination of the Cuban Revolution brought about a mass exodus of Cubans to South Florida. Members of the Cuban elite saw their lif e chances and opportunities limited by the new order, and thus comprised a large percentage of those who immigrated to the United States in the aftermath of the Cuban Revolution (Prez 2009: 139). The nationalization of the industrial sector also ensured that business owners were some of the first to leave the island (Alberts 2006). These members of the professional and entrepreneurial classes had tertiary educational attainment levels much higher than the general United States population, like todays Venezuelans, and rejected the involvement of the state in the economy in favor of the ideals of capitalism (Grenier & Prez 2003: 52). The m ost extensive wave of Cuban migration, though, occurred between 1965 and 1973 under a Memorandum of Understanding signed by the governments of Cuba and the United States. This memorandum, which gave priority to Cubans with relatives already residing in the United States, favored the pre revolutionary middle and upper class and led to a further consolidation of the Batista era elite in t he Miami area (Prez 2009: 139) Similarly, public opinion and fear of communism in the United States allowed the government to use Cuban migration trends as a political weapon in the fight against the Soviet Union and its allies (Grenier & Prez 2003: 22). Cubas Golden Exiles were granted refugee status that permitted them to enter without the restrictions imposed on most other nationality groups (Grenier & Prez 2003: 23). They benefitted from federal and local programs that provided massive amounts of aid with little fanfare that greatly enhanced their endeavors (Stepick et al. 2003: 3839). The opportunities provided to potential Venezuelan migrants by the

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95 U.S. Government, meanwhile, are few and far between. Thus, Venezuelans seeking to move to the United States permanently and legally must first possess a visa, which can take years to receive. In the post Cold War era in which we live: Venezuelan emigrants do not qualify as political refugees and enjoy no special advantage in the fierce competition for the 400,000 H1B work visas issued yearly by the U.S. for highly skilled migrants, three quarters of which go to Indians, who have an edge because they can speak English. (Margolis 2009) Both the Bush and Obama administrat ions have refused to recognize deferred enforced departure ( DED) for Venezuelans in the United States who have overstayed temporary tourist or educational visas. DED status would suspend the deportation of immigrants who may be at risk of politically motivated danger upon return to their country of origin (Campos M ello 2009). Although such status has been granted to Liberians, Nicaraguans, Chinese, Haitians, and Salvadorans, among others, during the last two decades, it has not yet been granted to Venezuelans. Despite overt government blacklisting in the form of t he Tascn List, the document spread by Chvez supporters that contained the personal data of every signatory of the 2004 recall referendum petition, i t is quite difficult for Venezuelans to receive political asylum in the United States (Alconada Mon, 2007) Many unsuccessfully cite their inclusion in the Tascn List when applying, and are subsequently forced to return to Venezuela (Alconada Mon, 2007). The fact is that Cubans are the beneficiaries of a unique Cold War (Grenier & Prez 2003: 1), while Venez uelan immigrants are the product of a completely different era. The Miami to which these first Cuban exiles moved was completely different than the global city of today Downtown consisted of a three block radius surrounding the courthouse. Policemen even remarked to one Cuban woman in 1959 that had the easy job of searching for two Hispanic individuals. Since there were so few Latinos in the region, they said that the

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96 process would be quick and simple (Alberts 2006: 139). Alberts argues that the locales experiences were clearly unique, as no other city had ever been so rapidly and profoundly transformed by a s ingle immigrant group (Alberts 2006: 149). In contrast, the Miami to which Venezuelans are fleeing is completely different. Latinos, mainly Cuban exiles and their children, control virtually all of MiamiDade s institutions (Stepick et al. 2003: 139). Long waves of immigration from Latin America and the Caribbean have made the city relevant internationally, transforming it into Latin Americas e conomic capital (Stepick et al. 2003: 10). Its status as a hub for regional banking and trade has truly made it a multicultural, multilingual Gateway to the Americas (Stepick et al. 2003). Despite the pro ximity of Havana to Miami, Cuba s Golden Exiles had far lower levels of contact with Cubans in Cuba during their first years on the Florida peninsula than Venezuelans in Florida have maintained with their countrymen in Venezuela. Though they expected to soon be able to return to Cuba, as soon as Castro was undoubtedly removed from power, the economic embargo that was imposed in 1962 severely limited Miami Cubans contacts with the island. In contrast, many Venezuelan migrants to the Miami area regularly visit Venezuela. Multiple daily flights on American Airlines, LAN, and Santa Barbara Airlines connect Miami with Caracas and Maracaibo, in what some have described as a new puente areo (air bridge) (Campos Mello 2009). Venezuelans throughout Florida are permitted to vote in Venezuelans elections at the consulate in Miami, while billions of dollars of business are conducted, legally, between Venezuela and the state of Florida every year. Case Study In early 2010 I conducted a series of 12 interviews with Venezuelan businesspeople. Eight (five males and three females) of the participants lived in Venezuela at the time of the interview and f our (all male) resided in Florida. The participants in this study were selec ted

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97 through the snowball sampling method. I began by asking personal contacts in the Venezuelan communities of Tampa, Jacksonville, Orlando, and Gainesville to refer me to entrepreneurs who would be willing to discuss their experiences. Those key informant s also assisted in setting up interviews with contacts in Venezuela The interviews were conducted in a semi structured format. Each interview was derived from an interview guide designed to bring about discussion on topics central to this study. The guide contained questions relating to the Venezuelan business environment, the decision process surrounding migration, and the challenges faced by immigrant entrepreneurs. The interviews were conducted in a variety of formats. Those interviews that took place with persons residing in the United States were conducted either inperson or via telephone, based on the preference of the person being interviewed. Those interviewees were asked if they preferred to do the interview in English or Spanish. All but one chose English The interviews with persons residing in Venezuela were primarily carried out using Skype, though a small number of interviewees preferred to answer questions via email. Finding potential interviewees was not difficult; persuading them to participate was an entirely different story. To protect the anonymity of the individuals who share d their views and experiences, the names and locations of employment are not revealed in this study. Since it was agreed that the individuals would remain anonymous, they are referred to in the results section by pseudonyms which I assigned (Table 42). Even with this in mind, many ultimately declined to participate. In more than one instance, a potential participant agreed to meet me at a specific time and location in order to take part in the interview before later reconsidering and withdrawing from the interview process altogether.

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98 On another occasion, a key informant who introduced me to one interviewee stated that I should ask the interviewee about his friend and neighbor, the owner of a Venezuelan restaurant. The interviewee claimed that he did not know the individual, even when I mentioned her by name. One interviewee suggested that this was due to fear instilled by the Chvez regimes attacks on free speech. Another key informant stated that the reluctance was due to the illegal status of many Venezuelans in Florida, though this seems likely because the individuals in question were proprietors of licensed businesses. Evaluation of the P re Chvez B usiness E nvi ronment The participants had a positive yet somewhat tempered, view of the Punto Fijoera Venezuelan business environment. Flix Luis and Carlos agreed that the key to the pre Ch vez business environment was its stability, in part due to the legal secur ity offered by the independent judiciary. While Jorge, a small business owner, admitted that the economy was no longer booming, as it had during the 1970s, he and other Venezuelan entrepreneurs were comforted by the fact that there was certain coherence in the implementation of plans and solutions. Rafael, however, disagreed with the assertion that there was stability and coherence. Although the country was better off than it is now, he said, all politicians are equal in that they focus on trying to obtain personal benefits instead of really helping the people. Still, Rafael concedes that there were available private sector jobs and high levels of commercial activity. We were happy and nobody realized it, he said, and now we miss all that we once had. Antonio, who is in the process of opening a store in the Orlando area, argues that the business environment pre 1998 was exactly what precipitated the rise of Ch vez to the presidency. The blunders committed by the governments of the Punto Fijo peri od, he says, ensured that the basic needs of large sectors of the population were being completely ignored.

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99 When combined with the onset of the Asian financial crisis that rapidly spread to Latin America in 1997 and pushed oil prices even lower, it became a perfect storm under which Ch vez the outsider was the only beneficiary. Paola, an economist, recognized that Venezuela had been suffering from macroeconomic problems that were starting to be persistent and overdependence on oil, but still thought tha t enough confidence in the economy was generated by the governments dealings with the private sector. Small firms still sought to capture market niches and search for opportunities based on ideas that had been successful in other countries. People still believed, said Paola, in Venezuelas economic potential. Alberto claims that, unlike today, the people did not depend entirely on the state. Instead, there was innovation that drove private investment and generated economic opportunities. Despite the economic hardships during the second terms of Carlos Andrs Prez and Rafael Caldera, said entrepreneur and professor Pilar, Venezuela still had a future and there was hope. Deterioration of the B usiness E nvironment Because of Chvez s attacks on and hostility toward private firms, Luis says that there is little motivation for anyone to invest. There are fewer opportunities, and the the state is omnipresent in all commercial activities. Flix agreed, stating that the market for prof essional labor has been drastically affected because everyone believes that the state wants to expropriate every private enterprise. Adriana, meanwhile, said that Chvez has made his one objective perfectly clear: to eliminate all private enterprises completely, as soon as possible. Under Chvez, says Alberto, the central bank has been unable to control inflation because of the governments insistence on printing money whenever it wishes to pursue new projects. The fact that there is no separation between fiscal and monetary policy, explained Flix means that the state will never moderate its behavior. Instead of being guided by accepted economic

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100 principles, institutions like the central bank are directed by what Adriana calls political factors that hav e very particular objectives that benefit an ideological model. The inability or unwillingness of the state to control the monetary liquidity, remarked Luis, exposes Venezuelans to the biggest tax of all: inflation. Such persistent inflation invariably causes purchasing power to decrease, and Flix believes that Venezuela is no exception. He says that the middle class has been hit hardest by the effects of inflation under Ch vez, because they receive no assistance while the poor benefit from subsidized g oods and the rich move all of their monetary assets to foreign banks. The overvalued, fixed exchange rate unfairly penalizes entrepreneurs who wish to export their goods, says Luis. In effect, the state is expropriating each familys savings in bol vares. Flix echoed Luis comments, criticizing the dependence on imports created by the artificially overvalued exchange rate. Because of the states exchange rate policy, Adriana believes that there is no longer an incentive to produce goods and services; i t would be impossible to export them, and there is not enough internal demand to justify the necessary effort. The deterioration of the business environment discourages entrepreneurs from even trying to offer products to other Venezuelans, says Adriana, be cause the economic capacity of the country is so low that nobody would be able to be a consumer of those goods and services. Insecurity and Ch vezs hostility toward private firms have forced entrepreneurs to close shop and flee the country, meaning that domestic production and employment are subsequently reduced and the overall productive capacity has become very low. Alberto said that the resultant loss of purchasing power from the forced devaluations of the bol var means that Venezuelans are unable to afford the necessary food for their families and capital inputs for their firms, products which must be imported from abroad. For this reason, remarked Alberto, the

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101 store shelves are always empty. The country is thus left in economic stagnation, a term mentioned independently by three participants. The root of all of Venezuelas economic problems, said Alberto, is that everything depends on the state. No sane person, Venezuelan or nonVenezuelan, would ever choose to invest in a country with so much dependence on an entity that is incapable of performing its duties, said Alberto. As an example, Alberto alluded to PDVSA, the employer for which he worked during the 1970s and 1980s. Where production reached 3.6 million barrels daily at the time of Chvez s election, mismanagement and the atmosphere of firing and targeting supporters of the opposition has caused production to drop to only 2.25 million barrels daily. Current PDVSA employees, who Alberto says are untrained and unqualified, have damaged the fi rms equipment so badly that it would be much cheaper to construct new refineries than repair the old ones. Likewise, said Alberto, Venezuela is not stuck in its current electric crisis because of a drought or because private firms and the oligarchy use too much electricity, as the government claims, but because of acute mismanagement. The government, said Alberto, is almost incapable of electrical generation and transmission, and it does not know how to effectively distribute the little electricity it does produce. The D ecision to E migrate Fernando, an MBA student at a university in Florida, lived in Venezuela until he was 25. After graduating from college with a degree in business administration, he was hired by a large mobile telecommunications firm and was quickly promoted to serve as a personal account manager for 25 of Venezuelas richest individuals. As their special contact, he was responsible for every aspect of their relationship with the firm, such as immediately replacing stolen cell phones and a rranging for devices to be used internationally on a moments notice. He initially did not plan to leave Venezuela; in fact, he was in the process of starting his own business a

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102 firm that would import new technological innovations and then market and int roduce them to corporate clients. Corruption, though, was too widespread. Although you can do anything you want if you pay the government enough money, as Fernando told me, he refused to spend the equivalent of thousands of dollars in bribes and then wai t hundreds of days for government approval. Every participant cited personal insecurity as the principal reason that people are choosing to leave the country. Fernando said that it was no longer safe anywhere in the country, but especially in the Caracas metropolitan area. He said that increasing levels of crime serve as more of a threat to private property than the government does, and provided an example of a hardworking entrepreneur who works night and day to be able to save up enough money to purchase a new car, only to have it stolen at gunpoint in broad daylight the next day. In contrast, nobody can take away what youve earned in the States, Fernando told me. You cant walk on the street in some places without being robbed, kidnapped, or killed, a nd for that reason I decided to move. Rafael received a university degree in electrical engineering, but later returned to school to complete an MBA. Although he worked full time as an estimating engineer for PDVSA, he and his wife also owned a private e lementary school. Although it was clear to him that Chvez wanted to convert Venezuela to communism and socialism, Rafael did not plan on leaving Venezuela until December 2002, when he was fired from his post at PDVSA for supporting the general strike. H e says that he and his co workers are considered enemies of the government, and are thus unable to receive government businesses licenses or seek employment with any major company. He moved to Saudi Arabia for the next few years in order to work in the oil

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103 industry, while his wife and two children remained in Venezuela. By 2007, he and his family were able to move to Florida, but their business did not survive the move. Eduardo, like many other college educated Venezuelans, was trained as an engineer but found employment outside the saturated oil engineering sector. He first worked for a utility company in his hometown of Barquisimeto after graduating from college during the early 1990s, but sensing an opportunity he created a business two years later. For the next five years, he made frequent trips to Panama and the state of Florida, where he purchased contact lenses, glasses, and frames from wholesale distributors and then sold them from his stores. But one day while Eduardo was stuck in traffic with his wife and one year old daughter shortly after Ch vez took office, a man walked up to the car and stuck a gun in Eduardos mouth, threatening him for driving too slowly a few miles back. That was all the impetus needed to force Eduardo and his family to lea ve the country. As a store owner and part time consultant with a degree in economics, Antonio understood that the Venezuelan economy had been faltering, even before the rise to power of C hvez. Still, for many years he resisted the temptation to move away from Maracaibo, the lively second city of Venezuela that he had called home his entire life. As business slowed and demand for his consulting services diminished, he began to recognize that the instability and lack of application of laws was becoming more severe. He first persuaded his oldest daughter to learn English and pursue graduate education in Florida; the rest of the family followed her in early 2010. Flix Fernando, and Luis mentioned the loss of purchasing power as a secondary, but important, reason for departure, while Paola felt that it is also a general lack of opportunities for advancement in the private sector that has led Venezuelans to flee the country. Only Jorge, Luis,

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104 and Adriana specifically stated that the political climate was one of the main reasons for Venezuelans to move abroad, though all of the participants blamed Ch vez for the deterioration of the social environment and the countrys rampant violence. Flix and Adriana agreed with Carlos assertion that when there is little hope for a future, there is nothing a person can do other than to seek out a better quality of life elsewhere. The participants still living in the country often think of leaving. Though Pilar says that it is a constant thought running through her mind, it would be a last resort. Flix says that he will leave if the government causes freedom of expression to be further eroded, while Alberto is considering joining his children in Florida. Each interviewee still residing in Venezuela stated they had family members who had fled the country; all had relatives living in the United States and all but one had family members living in the state of Florida. Three of the eight participants said that the ir relatives had left the country in 1999 and 2000, following Chvez s first election. The relatives of the remaining five did not leave until after 2004, when the recall referendum failed Effects of E migration on Venezuela Not one participant believed that continued entrepreneurial emigration would have a positive effect on Venezuela. Flix who himself will consider leaving if no progress is made at reestablishing freedom of expression and the separation of powers, believes that emigration is causing t he quality of educational institutions to decline in addition to forcing much of the economy into the informal sector. In short, he said, Venezuelan society is quickly moving backward. Pilar repeated the assertions made by Flix saying that the combined forces of emigration and government hostility would quickly eliminate entrepreneurship and the environment for business in the near future. Carlos said bleakly that entrepreneurship and the

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105 business environment are nearing total collapse after years of de terioration. Unless something changes, said Jorge, the drain of talent will leave Venezuela as a country of ghosts. Experiences in Florida Eduardos goal was to leave Venezuela as soon as possible after their brush with death. As he was initially unable to secure a residency visa in the United States, he contacted a friend living in Montral who encouraged him to apply for Canadian residency. In the meantime, he studied French daily in preparation for his familys move. His wife, whose family had emigrat ed from Syria to Venezuela shortly before her birth, already spoke French and Arabic. Upon their arrival, Eduardo was unable to find employment. Though his old acquaintance encouraged him to stay and continue to look for work while temporarily being suppor ted by the Canadian safety net. Eduardo, who already had become frustrated with the freezing Qubec winter, refused. His American visa had finally been approved, and Eduardo moved to Miami with his brother. Within a few months, Eduardo became aware that he intensely disliked Miami. The people he encountered were rude; he was especially put off by one group. He exclaimed that Cubans try to piss you off all the time! They, he said, think they own Miami. Shortly thereafter, he contacted a classmate from h is elementary school in Barquisimeto who was living in a smaller city a few hours to the north. There, he and his wife felt comfortable enough to immediately rent an apartment. While they studied English, Eduardo and his wife purchased a retail franchise. Within two years, they had saved enough money to purchase a new four bedroom house. Though he said that he continues to work long hours, Eduardo said that he is happy to have found success. Although he enjoys spending time with other Venezuelans living in the area, Eduardo has no desire to return to Venezuela As it turns out, Fernando had an advantage over most other Venezuelans he was born in the United States while his father was attending graduate school. Though he had only lived in the

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106 United State s until he was two years old and had never learned English, he was a U.S. citizen by birth. Thus, he was able to move to the country and seek out employment. That, he says, has been a huge advantage for me. Fernando knew that he wanted to live in Florida because of its climate and prominent Latino population, which made him feel very comfortable. Though he initially considered living in Miami, he disliked that it was also a divided, violent city. Venezuelans in the United States, he said, do not like to only associate among themselves, as he feels other Latino groups (especially Argentines, Colombians, Cubans, and Nicaraguans) in the Miami area did Instead he chose to move to the central part of the state, where he says that he still is able to find any V enezuelan product he desires at a number of Venezuelan owned businesses. Fernando learned English and was then hired as a personal banker. Now, after receiving his MBA he plans to create a project management start up firm that he hopes to expand to the S panishspeaking countries of Latin America, which he thinks have great potential despite the complex issues faced there by international firms. Fernando admits that he would even do business with the Venezuelan government, because there is a lot of money there, but he would not return there permanently and subject his family to violence and fear. As long as there is an opportunity, said Fernando, people will try to come here; they will try to chase the American dream. Antonio chose to move to Central Florida because of his previous knowledge of the area. As a parent, he had taken his children to theme parks in the region, and personal contacts had informed him that he would be able to survive initially despite being a monolingual Spanish speaker, which he may not have been able to do in other parts of the country. As a recent arrival, Antonio s pends most of his nights studying English. He still consults some firms in Venezuela,

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107 and has been marketing his services throughout the state of Florida. Antonio remains optimistic, saying that he will officially open a Florida branch of his business within the next year. Compared to Antonio, Rafael has had an easier time adjusting to life in the state. Because of his career at PDVSA and his time working in Saudi Arabia, he already spoke English and had received advice from numerous professional acquaintances, many of whom migrated to the United States before him. Despite being wellpaid during his career as an engineer, Rafael has been harmed financially by the i nability to sell his home in Maracaibo, which he blames on the economic situation and atmosphere of violence caused by C hvez. He and his wife wish to open another private school here, but realize that they will be unable to due to the necessary capital an d licensing requirements. Rafael knows that through education and experience he is qualified to work in many fields, yet is unable to find meaningful employment at his skill level. In the meantime, he will continue to do freelance consulting for the oil industry, a single employee profession that he says is among the most common for Venezuelans residing in Florida Predictions for the F uture of Venezuela Luis said that Venezuela has no future, because no long term plans are capable of being made by the g overnment. As a young father, he sadly says that my children will grow up in another country. Rafael agrees, saying that there is no light at the end of the tunnel. Carlos, on the other hand, is looking forward to September 2010s parliamentary elections with great anticipation. He believes that if the opposition can band together in unity, they will be able to change the course of the country and end Chvezs stranglehold on power by the time of the presidential elections in 2012. Still, he admitted, f ailure to achieve victory in 2010 would assure that Venezuela becomes a second Cuba. Even if there were an immediate regime change, Pilar believes that it would take two decades working at full speed in order to return to the pre Ch vez economic condi tions.

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108 Fernando thinks that it will take generations to fix the damage that Ch vez has caused. Everyone that has left the country will have to one day be able go back. We will have to show them what we have learned, not only here in the States but around the world, to build this country [Venezuela] from the ground [up]. For now, though, he will not return to Venezuela because there is no respect for new ideas. Until there is, the current pattern will continue. Summary Since 1998, the Venezuelan populat ion in the state of Florida has grown rapidly as well educated members of the middle class seek to escape the ever present threat of crime and violence as well as the economic uncertainty that accompanies the populist regime of President Hugo Rafael C hvez Fras. The loss of private sector jobs caused by the closure of private enterprises since the rise of C hvez is significant, and Venezuelans believe it could take decades for the country to regain the ground that it has lost due to economic mismanage ment by the state. Conversely, the flow of human capital to Florida is slowly becoming a boon for the states economy. After adapting to their new surroundings, Venezuelans are using skills gained in their native country to open new businesses that in the future will allow for greater connections between the state and Latin America.

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109 T able 4 1. Inequality and the propensity of the highly skilled to e migrate Brain drain Percent income held Country (10=high, 0=low) by top two deciles Venezuela 8.31 53.1 Colombia 8.05 60.9 South Africa 7.92 64.8 New Zealand 7.17 46.9 Philippines 7.08 52.3 India 6.85 46.1 Slovak Republic 6.62 31.4 China 6.22 46.6 Korea 5.89 39.9 Canada 5.88 39.3 Malaysia 5.62 53.8 Turkey 5.54 47.7 Russia 5.52 53.7 Sweden 5.52 34.5 Poland 5.38 40.9 Italy 5.36 36.3 Indonesia 5.00 44.9 France 4.95 40.2 Mexico 4.86 58.2 Estonia 4.63 41.8 Hong Kong 4.62 47.0 Denmark 4.59 34.5 Hungary 4.48 39.9 Singapore 4.42 48.9 Australia 4.30 41.3 Belgium 4.27 34.5 Greece 4.24 40.3 United Kingdom 4.22 43.0 Iceland 4.11 37.0 Slovenia 4.11 35.4 Brazil 4.07 63.8 Portugal 4.04 43.4 Thailand 3.97 48.4 Israel 3.94 42.5 Switzerland 3.66 40.3 Finland 3.46 35.8 Czech Republic 3.40 35.9

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110 Table 4 1. Continued Brain drain Percent income held Country (10=high, 0=low) by top two deciles Germany 3.32 38.5 Japan 3.17 35.7 Austria 3.12 33.3 Ireland 2.86 42.9 Norway 2.84 35.8 Netherlands 2.81 40.1 Spain 2.71 40.3 Chile 2.68 61.0 United States 1.45 46.4 Source: Kapur & McHale 2005, p. 82 Table 42. Case s tudy participants Pseudonym Locatio n Profession Adriana Venezuela Electrical engineer Alberto Venezuela Economic consultant, fmr. PDVSA engineer Antonio Florida Store owner, consultant Carlos Venezuela Small business owner, fmr. PDVSA executive Eduardo Florida Franchisee, educated as engineer Flix Venezuela Industrial engineer Fernando Florida MBA student Jorge Venezuela Small business owner Luis Venezuela Financial advisor, professor Paola Venezuela Economist Pilar Venezuela Store owner, professor, former engineer Rafael Florida Freelance consultant, fmr. school owner and PDVSA engineer

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111 Figure 4 1. Location of Venezuelans in the United States by state, 2009. Source: U.S. Census Bureau, 2009.

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112 Figure 4 2. Venezuelans in Florida by county, 2009. Source: U.S. Census Bureau, 2009.

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113 Figure 4 3. Venezuelans as a percentage of the total Hispanic/Latino population, selected metropolitan areas. Source: U.S. Census Bureau, 2009.

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114 CHAPTER 5 CONCLUSION This study was designed to investigate the cause and effects of Venezuelan entrepreneurial migration to the state of Florida during the presidency of Hugo Rafael Chvez Fras I analyzed the long term trends that affected Venezuelan economic performance and competitiveness during the pre Chvez Punto Fijo period, which began with the establishment of a power sharing democracy by the Accin Democrtica (AD) and COPEI political parties in 1958 a nd culminated with Chvez s triumph in the December 1998 presidential election. After tracing the factors that have caused a continuing deterioration in the Venezuelan business environment since 1998, I conducted a series of openended interviews with Vene zuelan business professionals to determine the principal reasons for emigrating the challenges faced by skilled immigrants upon arrival to the state of Florida, and the consequences that Venezuela is facing as human capital flows out of the country This chapter draws upon the themes raised during the interview s and attempts to place them in the context of the related literature; it additionally presents the limitations of this study and offers questions that would be worthwhile topics for future research. Research Findings Pre Chvez Business Environment The Venezuelan economy and business environment significantly deteriorated between the 1958 election of Rmulo Betancourt and the 1998 election of Hugo Chvez. Due to widespread corruption, a lack of policy continuity, high levels of government spending, and an overwhelming overreliance on revenue from the export of one commodity, oil, Venezuela experienced high levels of volatility and virtually no economic growth during those four decades Despite the countrys Punto Fijoera economy being termed a growth disaster, the Venezuelans who I interviewed expressed moderately positive views about the pre Chvez

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115 business environment. Though the interviewees recognized that the economy was in a steady state of decline after ADs Carlos Andr s Prez left office for the first time in 1979, they still believed that hope and optimism prevailed in the face of adversity and economic difficulties. It was recognized even then that Venezuela relied too much on its petroleum, but private investment and innovation helped to drive the economy. Perhaps most significantly, Venezuelans did not depend on the state Emigration from Venezuela Unanimously, every Venezuelan whom I interviewed agreed that personal insecurity was either the reason he chose to leave or the reason that compels most Venezuelan emigrants to flee the country. Although none of the Venezuelans stated that Hugo Chvez was the main reason for departure the y held him responsible for the wave of violent crime that has swept across Venezuela during his tenure. When asked if he would return to Venezuela if Chvez managed to fix the problem of personal insecurity, Fernando laughed and said that the scenario woul d be impossible because Chvez refuses to acknowledge the problem exists. Human capital outflows caused by violence are mentioned sparingly in the related literature, but there are many similarities between the Venezuelan situation and the case of Colombi an entrepreneurship in the United States described by Portes et al (2002). Fleeing the drugrelated violence that spread through that country during the 1980s and 1990s, middle class Colombians moved to the United States in search of security for their fa milies. The Venezuelans living in Florida who I interviewed were, like the Colombians in Portes study, distrustful of other individuals and wary of other Latino groups, especially Cubans, in Florida As was determined by zden (2006), an immigrant s exper ience in a skilled profession in the sending country does not generally translate to a corresponding salaried position in the United States, because of language issues and other factors. Despite Eduardo being trained in the

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116 field of engineer ing he was una ble to find employment as a civil engineer and instead eventually opened a franchise in an entirely unrelated line of work. Rafael is facing a similar situation: the two meaningful professions (as an estimating engineer and a private elementary school owne r) he once enjoyed in Venezuela have for the time being been replaced with the small amount of work he is able to obtain as a freelance oil sector consultant. Thus, it can be expected that, economically speaking, the gains from Venezuelan professional imm igration to Florida are not as large as would have been achieved under a scenario in which skills obtained through education and professional experience were easily transferred across international and linguistic borders. Despite the difficulties encounter ed by Venezuelan professionals seeking to find jobs or start businesses in Florida, they do not plan to return to their home country unless the political, economic, and social environments change drastically thereby making a net brain g ain for Venezuela unlikely i n accordance with the findings of Kapur & McHale ( 2005), Portes (2008), and Solimano (2002) Significance Human capital flight is a subject that has been studied by economists and sociologists in numerous locales throughout the world. My study fo cused on contemporary entrepreneurial migration to the state of Florida from Venezuela, a country plagued by high levels of inflation, a polarized political atmosphere, and a violent crime rate that ranks among the worlds highest. This study analyzed the historical events that have shaped the deterioration of the current Venezuelan business environment and cleared the path for the rise of populist president Hugo Chvez, finding that todays economic policies are a continuation of, not a break from, the fai led strategies of the pre Chvez Punto Fijo period. My research found that increasing levels of crime and violence during the presidency of Hugo Chvez are the primary cause of the massive emigration of middle and upper class

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117 business professionals from Venezuela in search of more security and better opportunities elsewhere; politics or economics alone seem to have little to do with the decision to emigrate. For many that choose to migrate to the state of Florida, they are often faced with the difficult c hallenge of starting a new business or finding a suitable profession at an equivalent skill level to the job that was left behind. Still, Venezuelan immigrants are unlikely to consider moving back to their home country. Venezuela is becoming worse off econ omically and intellectually because of the departure of some of its most entrepreneurial and talented citizens, and it is clear that these trends will not reserve unless significant, responsible reforms are undertaken by the Venezuelan government. Limitati ons and Topics for Future Research Of the Venezuelans I interviewed, all were staunchly anti Chvez It would have been worthwhile to hear the opinion of at least one pro Chvez entrepreneur. There are some entrepreneurial individuals, often known as the boliburgueses ( Bolivarian bourgeois ), who have advantageously aligned themselves alongside the government, and they have thus benefitted from the spoils of government contracts and favors. Despite their success in Chvez s Venezuela, do they still consider emigrating? How do they feel about Chvez s threatening attitude toward private enterprise? Because of a lack of personal connections and access, I was also unable to interview any members of the lowest socioeconomic strata, who lack the ability to emigra te from Venezuela de spite the desire to do so. I think that it would be extremely informative to hear from individuals in these socioeconomic groups who aspire to be entrepreneurs. Though members of these strata historically have formed the base of support for Chvez and the PSUV do those with entrepreneurial tendencies share the same political leanings? Are they being harmed or helped by the vast network of missions and subsidized goods? Do their fledgling businesses receive

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118 assistance from the government or are they being crowded out by public sector initiatives and regulations ? Furthermore, while the Venezuelans I interviewed claimed that personal insecurity was the primary motivating factor for emigration, I do not believe that violence can so easily be disentangled from economics and politics. What is driving Venezuelas rampant violence? I s Venezuelas deteriorating business environment a cause or an effect of the increase of crime throughout the country? What role does the extreme polarization of the country, encouraged and exploited by Chvez play? If addressed, these topics (while far f rom being an exhaustive list) would provide valuable insight into this important issue of Venezuelan human capital and migration that lies at the heart of the field of Latin American studies.

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119 APPENDIX A INTERVIEW GUIDE 1. What was your occupation in Venezuela? a. Did you own your own business? b. Do you still have your own business in Venezuela? c. What is its relationship to the business here? 2. What is your educational attainment? a. Did you attend university in Venezuela, in the Unit ed States, or elsewhere? b. If you have children, at what age did they leave? Where have they been educated? 3. What is your occupation in the United States? a. Do you own your own business in the U.S.? 4. Do you still maintain business connections with Venezuel a? 5. When did you leave Venezuela? 6. What was your primary reason for choosing to leave Venezuela? a. Why did you decide to move to Florida? 7. Do many of your family members still live in Venezuela? a. What percentage now live in the U.S.? b. What percentage live in a country other than the U.S. or Venezuela? 8. Have your views on Hugo Chvez changed over time? a. What did you think of Chvez in 1992, after his attempted coup? b. What did you think of Chvez in 1998, when he ran for president? 9. What was your opinion of the Venezuelan business environment before 1998? 10. How has the business environment changed during Chvez s tenure in office? c. Did any of these changes affect your business or you personally? 11. How would you characterize the attitude of the government toward priva te enterprise? 12. How has the fixed exchange rate affected the Venezuelan economy? 13. What will be Venezuelas future? a. If young Venezuelans continue to leave the country to attend universities, what will happen to education, entrepreneurship, and the business en vironment in the future? 14. Do you plan to move back to Venezuela? a. If yes, what would have to change? b. Would you ever consider moving back to Venezuela while Chvez is president ?

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120 APPENDIX B TI MELINE OF EVENTS July 5, 1811 Independence declared from Spain 18111823 Venezuelan War of Independence 1822 Repblica de Gran Colombia formed by the provinces of Cundinamarca Venezuela, and Quito following the decisive victory over Spanish forces at Carabobo and the signing of the Constitution of Ccuta Janua ry 13, 1830 Venezuela secedes from Gran Colombia and declares independence October 18, 1945 Golpe de estado by AD and military against President Isaas Medina 19451948 Trienio period led by Rmulo Betancourt and Rmulo Gallegos November 24, 1948 Military junta led by Marcos Prez Jimnez and Carlos Delgado Chalbaud July 28, 1954 Hugo Rafael Chvez Fras is born in the town of Sabaneta, Barinas state January 23, 1958 Rioting throughout the country forces Prez Jimnez to resign. October 31, 1958 P unto Fijo Pact power sharing accord signed by AD, COPEI, and URD. 1960 OPEC proposed and formed by government of Betancourt (AD). 1971 Hydrocarbons Reversion Law signed by Rafael Caldera (COPEI). 1973 First oil shock 19751976 Carlos Andrs Prez national izes the iron and petroleum industries; PDVSA created. 1979 Second oil shock. February 18, 1983 Venezuela defaults on its debt, the bolvar is devalued and a dual exchange rate is announced. February 27, 1989 The Caracazo occurred as Venezuelans protested Prez s Economic Adjustment Plan. Up to 2,000 are killed after Prez orders the army to crush the riot. February 4, 1992 The MBR 200 revolutionary group, led by 37 old Lt. Col. Hugo Chvez initiates a coup d tat The attempt fails, and Chvez is sent to Yare prison. A second, unrelated golpe also fails nine months later.

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121 1993 Prez is suspended from office and later impeached in charges of corruption. Rafael Caldera splits from COPEI and wins the presidential election. March 27, 1994 Caldera announces gov ernments decision to drop the charges against Chvez, causing his immediate release. December 6, 1998 Chvez (MVR) elected as president with over 56% of the vote. December 15, 1999 New constitution, which changes the name of the country to the Bolivarian Republic of Venezuela, allows the president to be re elected, and combines the bicameral legislature into a single National Assembly, is approved with 72% support. July 30, 2000 Chvez wins re election to a six year term following the guidelines of the new constitution. November 2001 Chvez announces 49 new laws by de c ree powers given to him by the Enabling Law. The new legislation includes the Law of Land and Agrarian Development, which calls for the elimination of large landholdings. April 8, 2002 Chvez announces the dismissal of PDVSAs top executives. April 9 10, 2002 Two day general strike announced by CTV and Fedec maras in support of the ex PDVSA leaders April 11, 2002 Hundreds of thousands march in Caracas in support of the strike. The protestors c lash with Chvez supporters blocking the path of their march to Miraflores Palace. Masked pro Chvez gunmen shoot into the crowd from bridges and the rooftops of buildings, causing dozens of deaths. Chvez orders the military to activate Plan vila and shoot the opposition protestors. The militarys high command refuses, and demands on national television that Chvez resign. April 1213, 2002 After Chvez is taken into custody by the armed forces, the military announces Pedro Carmona as the head of the provisional government. Carmona announces the dissolution of the National Assembly and the Supreme Court. The Presidential Guard, still loyal to Chvez, retakes Miraflores and forces Carmona to announce his resignation. April 14, 2002 Chvez returns by military helicopter to Caracas and resumes his presidency December 2, 2002 Two month general strike begins. GDP falls by 25% compared to the same period a year earlier. 18,000 PDVSA employees are fired by Chvez at the conclusion of the strike.

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122 February 2004 Tascn List, which contains signatures of recall referendum supporters, is compiled on Chvez s orders. The document is used to blacklist opposition support ers from government and private sector jobs. May 2004 Organic Law of the Supreme Tribunal of Justice court packing law is passed. August 15, 2004 A recall referendum is held to determine if Chvez should be removed from office, as allowed by the 1999 constitution. The referendum fai ls 59% to 41% though accusations of fraud are raised by polling experts January 2005 At the World Social Forum in Porto Alegre, Brazil, Chvez announces for the first time that he is building Socialism for the 21st Centur y. December 4, 2005 The opposition boycotts the parliamentary elections, giving Chvez aligned parties control of 156 of the National Assemblys 167 seats. December 3, 2006 Ch vez, gaining nearly 63% of the vote, wins a second six year term over opposition challenger Manuel Rosales. December 28, 2006 Chvez announces that the government will not renew the over the air broadcasting license of RCTV. The network moves to cable. Jan. Feb. 2007 Chvez nationalizes the largest telephone and electric companies an d expels foreign oil companies engaged in joint venture projects with the government. December 2, 2007 Chvezs constitutional reform referendum, which would abolish term limits and implement 68 other reforms, fails; the 51% to 49% margin is Chvez s first defeat. March July 2008 Chvez orders the expropriation of a dairy producer, a cold storage firm, the local operations of three foreign cement manufacturers, the countrys largest iron and steel manufacturer, and the Venezuelan subsidiary of Banco Santander. July 2008 Barrel price of Venezuelan Tia Juana Light oil reaches $137.98. February 15, 2009 A redesigned referendum passes with 55% support; term limits for all public officials are abolished. December 2009 Chvez seizes seven private banks. January 8, 2010 Chvez announces that the bolvar will be devalued by 100%. A dual exchange system is also introduced; government officials will decide which importers will receive the preferential dollar exchange rate.

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123 January 24, 2010 RCTV is banned from the air waves one day after refusing to broadcast a government message March 22, 2010 Opposition leader Oswaldo lvarez Paz (COPEI) is arrested after stating in a television interview that Venezuela has become a haven for drug traffickers, assertions that had earlier been confirmed by international governmental and non governmental organizations. March 25, 2010 Globovisin President Guillermo Zuloaga is arrested after stating at a n Inter American Press Association meeting that freedom of the press no longer exist s in Venezuela.

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124 LIST OF REFERENCES Abbady, T. (2006, June 14) Taking Ownership. South Florida SunSentinel. Fort Lauderdale Alberts, H. C. (2006) The Mu ltiple Transformations of Miami, i n H. A. Smith, & O. J. Furuseth (eds.) Latinos in the New South: Transformations of Place Ashgate Publishing Ltd : Aldershot, 135152. A lconada Mon, H. (2007, April 1) Huyen de Chvez para rehacer sus vidas La Nacin Buenos Aires. Ali, T. (2006, Novembe r 9) A beacon of hope for the rebirth of Bolvar's dream The Guardian. London. Altamirano Rua, T. (2006) Remesas y nueva "fuga de cerebros" : Impactos transnacionales. Pontificia Universidad Catlica del Per Fondo Editorial: Lima. Baduel, R. I. ( 2007, December 1) Why I Parted Ways With Chvez The New York Times. Bandell, B. (2009, December 11) Local banks may get stung by Venezuela. South Florida Business Journal. Baptista, A. (2003) Las crisis eco nmicas del siglo XX venezolano, i n P. Mrquez, & R. Piango ( eds.) En esta Venezuela: realidades y nuevos caminos Ediciones IESA : Caracas, 47 68. Briceo Len, R. (2009) Venezuela en un mundo de violencia globalizada in R. Briceo Len, O. vila, & A. Camardiel ( eds.) Inseguridad y violencia en Venezuela: Informe 2008. Editorial Alf a : Caracas, 15 43. Briceo Len, R., vi la, O., & Camardiel, A. (2009a) El temor a ser vctimas, in R. Briceo Len, O. vila, & A. Camardiel ( eds.) Inseguridad y violencia en Venezuela: Informe 2008. Editorial Alfa : Caracas, 130139. Briceo Len, R ., vi la, O., & Camardiel, A. (2009b) Por temor perdemos la ciudad, in R. Briceo Len, O. vila, & A. Camardiel ( eds.) Inseguridad y violencia en Venezuela: Informe 2008. Editorial Alfa : Caracas, 140148. Briceo Len, R., vi la, O., & Camardiel, A. (2009c) La gestin del gobierno venezolano en seguridad ciudadana, in R. Briceo Len, O. vila, & A. Camardiel ( eds.) Inseguridad y violencia en Venezuela: Informe 2008. Editorial Alfa : Caracas, 165171. Bulmer Thomas, V. (2003) The E conomic History of Latin America since I ndependence Cambridge University Press : Cambridge, U.K. Caballero, M. (1998) Las crisis de la Venezuela contemp ornea (1903 1992). Monte Avila Ed itores Latinoamericana: Caracas

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125 Ca mpos Mello, P. (2009a, June 29) Expatriados querem status legal contra deportao. O Estado de S. Paulo. Ca mpos Mello, P. (2009b, June 29) Nos EUA, venezuelanos 'no exlio' se organizam O Estado de S. Paulo Castaos Lomnitz, H. (2004) Migracin de talentos mexicanos: polticas y realidades i n H. Castaos Lomnitz ( ed.) La migracin de talentos en Mxico. Universidad Nacional Autnoma de Mxico: Mexico City, 4962. Castaos Lomnitz, H., Rodrguez Sala, M. L ., & Herrera Mrquez, A. (2004) Fuga de talentos en Mxico: 19701990, un estudi o de caso i n H. Castaos Lomnitz ( ed.) La migracin de talento en Mxico Universidad Nacional Autnoma de Mxico : Mexico City, 17 48. City of Doral. (2009) 2008 Economic Development Business Census Retrieved December 2, 2009, from City of Doral: http://www.cityofdoral.com/cityofdoral/index.php?option=com_docman&task=doc_dow nload&gid=1517&Itemid=158 Consejo Nacional Electoral. ( 2006) Elecciones Presidenciales Cuadro Comparativo 1958 2000 Retrieved March 2, 2010, from Consejo Nacional Electoral: www.cne.gov.ve/estadisticas/e006.pdf Contreras, M. (2007) Socialismo del siglo XXI. Al debate Revista Venezolana de Economa y Ciencias Sociales 13(2). Crowe, D. (2010, March 17) Venezuela's Polar Vows To Challenge Warehouse Seizure The Wall Street Journal. Crowe, D. & Lunhow, D. (2010, March 26) Venezuela Briefly H olds TV Executive Critical of Chvez The Wall Street Journal. Daniel, F. J. (2009, May 15) Venezuela temporarily seizes Cargill pasta factory Retrieved March 12, 2010, from Reuters: http://www.reuters.com/article/idUSTRE54E5P620090515 de Crdoba, J., & Molinski, D. (2010, March 24) Venezuela Arrests Vocal Critic for Conspiracy The Wall Street Journal. de la Barra, X. & Dello Buono, R. A. (2009) Latin America after the neoliberal de bacle: Another region is possible. Rowman & Littlefield : Lanham, MD de la Vega, I. (2005) Mundos en movimientos : Movilidad y migracin de cientficos y tecnlogos venezolanos Fundacin Polar : Caracas Diehl, J. (2008, June 30) The Rival Chvez Won't Permit The Washington Post.

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126 DiJohn, J. (2009) From windfall to curse?: Oil and industrialization in Venezuela, 1920 to the present Pennsylvania State University Press : University Park, PA Doc quier, F., & Marfouk, A. (2006) International Migration by E ducation Attainment, 19902000, i n zden, & M. Schiff ( eds.) International Migration, Remittances & the Brain Drain The World Bank: Washington, 151200. Economic Commission for Latin America an d the Caribbean (ECLAC). (2009) Retrieved December 4, 2009, from http://www.eclac.org/ Economist Intelligence Unit, The. (1999) Country Report: Venezuela, First Quarter 1999. The Economist Intelligence Unit: London. Economist, The. (1998a, July 2) It's all Chavez The Economist. Economist, The. (1998b, November 12) The colonel rides on: Lower level elections in Venezuela have boosted the presidential hopes of an outspoken populist, Colonel Hugo Chavez. The Economist. Economist, The. (1999a, January 1 4) Chavez hits the ground running. The Economist. Economist, The. (1999b, November 18) Chavez's muddled new world. The Economist. Econ omist, The. (2006, February 16) Mission impossible The Economist. E conomist, The. (2008, August 7) The autocrat of Caracas: Hugo Chvez tightens the states grip on politics and the economy The Economist. Elliott, A. (2003, January 17) Cuban community plans big parade to show solidarity with Venezuelans The Miami Herald. Faria, H. J. (2008) Hugo Chvez Against the Backdrop of Venezuelan Economic and Political History The Independent Review 12(4): 519535. Fe rnndez, J. J. (2008, March 18) El exilio venezolano inunda Florida. El Pas. Madrid. Forero, J. (2004, September 30) Venezuela's go vernment seeks to show that its oil riches are well spent The New York Times. Franko, P. (2007) The Puzzle of Latin American Economic Development Rowman & Littlefield : Lanham, MD Freije, S. (2008) Distribucin y redistribucin del ingreso en Venezuela. Amrica Latina Hoy 48: 83107.

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127 Go nzlez de Pacheco, R. A. (2003) Encuestas, cacerolazos y marchas i n P. Mrquez, & R. Piango ( eds.) En esta Venezuela: realidades y nuevos caminos Ediciones IESA: Caracas, 337 356. Gott, R. (2005) Hugo Chvez and the Bolivarian Revolution. Verso: London. Grech, D. (2007, August 9) Welcome to 'Westonzuela' Retrieved November 15, 2009, from Marketplace from American Public Media: http://marketplace.publicradio.org/display/web/2007/08/09/welcome_to_westonzuela/ Gre nier, G. J., & Prez, L. (2003) The Legacy of Exile: Cubans in the United States Allyn and Bacon : Boston. Guerra, J. (2004) La poltica econmica en Venezuela: 19992003. Universidad Central de Venezuela, Consejo de Desar rollo Cientfico y Humanstico : Caracas Hawkins, K. (2003) Populism in Venezuela: the rise of Chavismo Third World Quarterly 24( 6): 11371160. Hellinger, D. (2009) Venezuela, i n H. E. Vanden, & G. Prevost (eds.) Politics of Latin America: the power game (3rd ed.). Oxford University Press : New York Human Rights Foundation. (2007) Francisco Usn: Political Prisoner and Prisoner of Conscience. Retrieved March 22, 2010, from Human Rights Foundation: http://www.thehrf.org/usonExecutiveSummary.html Human Rights Watch. (2008) A decade under Chvez : Political intolerance and lost opportunities for advancing human rights in Venezuela. Human Rights Watch: New York Huma n Rights Watch. (2010, January) Venezuela: January 2010 Country Summary Retrieved February 2, 2010, from Human Rights Watch: http://www.hrw.org/sites/default/files/related_material/venezuela_0.pdf International Institute for Manag ement Development (IMD). (2009) World Competitiveness Yearbook Retrieved February 4, 2010, from International Institute for Management Development: http://www.imd.ch/research/publications/wcy/index.cfm Ixer, S. (2005, October 10) Chvez's Oil Fuel ed Revolution. BusinessWeek. Johnson, L. (1978) An Analysis of the Venezuelan Securities Legislation: Part I The Primary Markets International Lawyer 12(1): 171192. Kapur, D., & McHale, J. (2005) Give Us Your Best and Brightest: The Global Hunt for Talent and Its Impact on the Developing World. Center for Global Development : Washington.

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128 Katz, I. (2007, June 25) Capital Flight to South Florida: Venezuelans fearful of confiscation are sending billions out of Chvez's reach. BusinessWeek. Lemoine M. (2008, July) La Colombie, Interpol et le cybergurillero. Le Monde diplomatique Lpez, L. (2009, May) Oslo Freedom Forum Leopoldo Lpez Retrieved January 17, 2010, from http://vimeo.com/5232625 Lyons, J., & Crowe, D. (2010, January 9) Chavez Devalues Venezuela's Currency. The Wall Street Journal. Marcano, C. & Barrera Tyzska A. (2007) Hugo Chvez Random House : New York Margolis, M. (2009, July 1) The Bolivarian Brain Drain. Retrieved September 27, 2009, from Newsweek: http://www.newsweek.com/id/204835 Mrquez, P. (2003) Vacas flacas y odios gordos: la polarizacin en Venezuela, i n P. Mrquez, & R. Piango ( eds.) En esta Venezuela: realidades y nuev os caminos Ediciones IESA : Caracas, 29 46. MercoPress. (2007, July 24) Chavez and crime feeds growing Venezuelan exodus Retrieved November 15, 2009, from Mercopress South Atlantic News Agency: http://en. mercopress.com/2007/07/24/chavez and crime feeds growing venezuelan exodus Miller, E. (2010, January 29) Enterprising Couple Find Niche in Kid's Play St. Petersburg Times. Monteferrante, P. (2003) La cotidianidad del venezolano: entre el miedo y la violencia, i n P. Mrquez, & R. Piango ( eds.) En esta Venezuela: realidades y nuevos caminos Ediciones IESA : Caracas, 269 288. Nelson, B. A. (2009) The Silence and the Scorpion: The Coup Against Chavez and the Making of Modern Venezuela. Nation Books : New York Oppenheimer, A. (2005) Cuentos chinos : El engao de Washington, la mentira populista y la esperanza de Amrica latina. Editorial Sudamericana : Buenos Aires zden, (2006) Educated M igrants: Is There Brain Waste? i n zden, & M. Schiff ( eds.) International Migration, Remittances & the Brain Drain. The World Bank: Washington, 227244. Pars, F. (2003) Del descubrimiento de Pdvsa al intento de suicidio, i n P. Mrquez, & R. Piango ( eds.) En esta Venezuela: Realidades y nuevos caminos Ediciones IESA : Caracas, 143 162.

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129 Penfold, M. (2002) Costo Venezuela: Opciones de poltica para mejorar la competitividad. Corporacin Andino de Fomento: Caracas Penfold, M. (2007) Compe ting Under Stress: The Shrimp Cluster in Venezuela in R. E. Grosse & L. F. Mesquita (e ds.) Can Latin American firms compete? Oxford University Press : New York, 150 168. Pe nzini Lpez, P. (2004, June 23) Venezolanos en Miami El Nacional. Caracas. Prez, L. (2009) Racialization Among Cubans and Cuban Americans in J. A. Cobas, J. Duany, & J. R. Feagin (eds.) How the United States Racializes Lations: White Hege mony & Its Consequences Paradigm Publishers : Boulder, 134 148. Piango, R. (1991) La fuga como opcin de carrera ante las limitaciones de las organizaciones venezolanas para aprovechar el talento in E. Garbi (ed.) La fuga de talento en Venezuela Ediciones IESA : Caracas, 7 26. Portes, A. (2008) Migration and Development: A Conceptu al Review of the Evidence. Wilson School of Public and International Affairs, Center for Migration and Development : Princeton, NJ Portes, A., Guarnizo, L. E., & Haller, W. J. (2002) Transnational Entrepreneurs: An Alternative Form of Immigrant Econom ic Adaptation American Sociological Review 67: 278298. Primera M. (2008, December 8) Estar hasta que el pueblo mande ". El Pas. Madrid. Re porters Without Borders. (2009) Press Freedom Index 2009. Retrieved February 2, 2010: http://en.rsf.org/press freedom index 2009,1001.html Ro drguez, F. (2008, March/April) An Empty Revolution: The Unfulfilled Promises of Hugo Chvez Foreign Affairs 87(2): 4962. Romero, S. (2007, July 5) Media Mogul Learns to Live With Chvez The New York Times. Rondon, P. (2010, March 4) Venezuela's Chavez seizes U.S. food giant unit Retrieved March 12, 2010, from Reuters: http://www.reuters.com/article/idUSN0426337720090305 Sanoja, P. (2009) Ideology, Institutions and Ideas: Explaining Political Change in Venezuela Bulletin of Latin American Research 28(3): 394410. Santos, M. (2003) El rompecabezas macroeconmico: qu sabemos, qu no sabemos y qu podemos hacer? i n P. Mrquez, & R. Piango ( eds.) En esta Venezuela: realidades y nuevos caminos Ediciones IESA : Caracas, 69 94. Sayago, O. (2002, December 18) El 41,9% de los ciudadanos est dispuesto a em igrar El Nacional Caracas.

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130 Schiff, M. (2006) Brain Gain: Claims about Its Size and Impact on Welfare and Growth Are Greatly Exaggerated in zden, & M. Schiff (eds.) International Migration, Remittances & the Brain Drain The World Bank: Washington, 201226. Semple, K. (2008, January 23) Rise of Chvez Sends Venezuelans to Florida. The New York Times. Smith, G. (2010, March 11) A Food Fight for Hugo Chavez BusinessWeek. Solimano, A. (2002) Globalizing talent and human capital: implications for developing countries Serie macroeconoma del desarrollo, 15. Naciones Unidas, CEPAL, Economic Development Division: Santiago. Stepick, A., Grenier, G., Castro, M., & Dunn, M. (2003) This Land is O ur Land: Immigrants and Power in Miami University of California Press : Berkeley Sylvia, R. D., & Danopoulos, C. P. (2003) The Chvez phenomenon: political change in Venezuela. Third World Quarterly 24(1 ): 6376. Tarver, H M., & Frederick, J. C. (2006) The History of Venezuela Palgrave Macmillan : New York The Heritage Foundation. (2010) Venezuela Retrieved February 4, 2010, from The Heritage Foundation 2010 Index of Economic Freedom : http://www.heritage.org/Index/Country/Venezuela U.S. Energy Inf ormation Administration. (2010) EIA Petroleum Data, Reports, Analysis, Surveys Retrieved March 1, 2010, from U.S. Energy Informa tion Administration: http://www.eia.doe.gov/oil_gas/petroleum/info_glance/petroleum.html Unit ed States Census Bureau. (2009) American FactFinder Retrieved November 2, 2009, from: http://factfinder.census.gov/ V anden, H. E., & Prevost G. (2009) Politics of Latin America: The power game Oxford University Press: New York. Vargas Llosa, (2006, September 25) Chvez's Inferno. The Wall Street Journal. Villarroel, G. E. (2009) Cosa nueva, cosa vieja. El contexto poltico de la violencia i n Briceo Len, R ., vila, O ., & Camardiel, A. ( eds.) Inseguridad y violencia en Venezuela: Informe 2008. Editorial Alfa: Caracas, 67 94. World Bank Group, The. (2009) Doing Business in Venezuela. Retrieved February 2, 2010, from Doing Business The World Bank Group: http://www.doingbusiness.org/ExploreEconomies/? economyid=201

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132 BIOGRAPHICAL SKETCH David Michael Harmel was born in Columbus, Ohio. He was raised in St. Petersburg, Florida, and earned the distinction of National Merit Scholar and class valedictorian of Northeast High School. He attended the University of Florida, where he graduated Phi Beta Kappa and summa cum laude with a Bachelor of Arts in Economics and Spanish in 2008. While pursuing his undergraduate education, he studied abroad in Paris, France, a nd completed an internship at the U.S. Small Business Administrations Office of International Trade. His undergraduate honors thesis on the determinants of population change was supervised by Dr. Lawrence Kenny. In 2008, David enrolled in the Master of Ar ts in Latin American Studies (MALAS) program at the University of Florida, where he specialized in Latin American Business Environment and served as a graduate assistant for Dr. Christopher Birkbeck, Bacardi Family Eminent Scholar, and Dr. Terry McCoy, Professor Emeritus and Director of the Latin American Business Environment Program. As a MALAS student, David participated in a Financial Markets Study Tour in Chile and traveled to Argentina, Colombia, and Uruguay.