Middle classes in Latin America (7). Impoverishment in Venezuela

In Venezuela, the changing of the cycle and the wrong policies applied raise many questions about the recovery of the social groups that benefited from the recent oil boom. Español

Manuel Hidalgo
10 May 2016

A woman sips on a beverage sitting next to a sign that features jailed opposition leader Leopoldo Lopez, at an anti-government demonstration in Caracas, Venezuela, Tuesday, April 19, 2016. AP Photo/Ariana Cubillos

Today, the Venezuelan middle class is in free fall and suffering the impact of the severe economic crisis affecting the country since the beginning of 2015. The way of life of the middle class has been shattered, and the vulnerable groups, who left poverty behind between 2003 and 2008, are also suffering the adverse effects of the change in the oil cycle and of the economic model implemented by chavism.

Despite the heterogeneity of the sectors that comprise it, the concept of middle class in Venezuela became synonymous of a lifestyle representative of the rapid and substantial development undergone by the country between the 1950s and 1970s. A middle class professional could buy a house, change his car periodically, pay for private education and healthcare, have an active social life and travel abroad. The middle class, a fundamental social pillar of the party democracy established in 1958, suffered a marked deterioration in its quality of life in the 1980s, and especially in the 1990s, due to the aggravation of the economic crisis and the implementation of stabilization and structural adjustment measures in the context of the Washington Consensus. During Hugo Chávez’s mandate (1999-2013), changes intensified when the ruling elites took the option of a radically different model of society in terms of the state controls imposed by the state.

The recovery of the oil prices in the fall of 2003 and the subsequent boom, which lasted a decade, greatly influenced the inception of the so-called Bolivarian socialism. Notably, the high increase in public expenditure, in particular social spending, stimulated economic activity. As a result, i) the income of the middle classes increased (although they progressively felt their lifestyle was being threatened), and ii) in addition, many households moved out poverty (through income) and into the vulnerable class, with a different lifestyle from that of the middle classes, but likewise driven by consumerism. Table 1 shows the remarkable percentage increase in the middle and vulnerable classes between 2003 and 2011. To estimate the different classes, sociologist Lissette González used the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) methodology, which is more appropriate than the one used by other international organizations because the income conversion to dollars becomes problematic due to the exchange rate controls and the different exchange rates applied in Venezuela. The low percentage of middle class and the high levels of poverty in 2003 are largely due to the crisis resulting from the general strike between late 2002 and early 2003 (although the type of measurement is not the same, consultants such as Datanálisis evaluated the middle class at around 18% in 1998).

Table 1.Population distribution by social class in Venezuela (2003-2011)

Tabla English 1.jpg

Source: Lissette González (2014) from the Survey of Households by Sampling.

Although Venezuela enjoyed, up to 2014, a decade of relative economic stability as a result of the high price of oil (which represented an income of more than $860,000 million from 1999 to 2014) and favourable international credit conditions, beginning in 2011 the negative effects of the government’s policies on the economy’s productivity became apparent, as can be seen in Table 1. The price and exchange rate controls (in force since 2003), the nationalizations, expropriations, the limitations on private initiative, etc., had a very negative effect on economic activity. The continuity of these policies after 2013 by Chavez’s heir, Nicolas Maduro, have aggravated the existing problems with the ruling elites by not making any provisions for the possible collapse in oil prices, as in fact happened in the second half of 2014, thus limiting the access to foreign currencies, monopolized by the government, which are essential for the economy.

Since the beginning of 2015, the economy is undergoing a serious crisis with a sharp decline in GDP, high inflation (the highest in the world), a considerable deterioration of the labour market, a high increase in the shortage of products and basic supplies, a deterioration of public services, not to mention the great difficulties to obtain medical drugs and the rampant public insecurity. In this context, the quality of life of the Venezuelans has been most adversely affected - a decline that is not properly measured by some indicators such as, for example, the Human Development Index (HDI).

Table 2.Households in poverty conditions by income in Venezuela (1998-2015)

Tabla English 2.jpg

Source: Survey on Life Conditions (ENCOVI), 2014 and 2015. UCAB-USB-UCV.

The Executive has ceased to publish the figures of poverty by income. However, according to data from other sources, the deterioration of the situation of the middle and low classes is quite apparent. The consulting firm Datanálisis estimates the middle class at 17.7% of the population in May 2015. In relation to poverty, the figures contributed in two studies carried out by several Venezuelan universities in 2014 and 2015 (table 2) are illustrative of the social landslide. By 2014, recent poverty had significantly increased (33.02%) to nearly 16 million people. By 2015, poverty levels exceeded those existing at the beginning of the Chavez period.

Undoubtedly, the sectors of the middle and low middle class dependent on paid employment have suffered the most due to the high levels of inflation and the deterioration of the labour market. Those who can, use their credit cards and rely on an uncertain future. The impoverishment of the middle class is evident, although some groups who run their own businesses have been able to maintain their standard of living and have even thrived. Other sectors of the population, in particular young people, have chosen to emigrate. In relative terms, the poor, even though they do not enjoy an effective system of social protection, have endured the situation somewhat better thanks to minimum wage increases and government transfers. Yet, the last year has been very difficult as the price of the basic food basket has significantly increased - hence, the pauperization of the population. While bachaqueo (illegal sale of products) has become a way of life for some partly organized groups, it is not a general practice for ordinary citizens.

In Venezuela, as in other countries in the region heavily dependent on the international price of commodities, social groups that increased their income during the recent oil boom are now suffering from the change of the cycle and the wrong policies that have resulted in high, and largely unproductive, public spending and massive debt. In the last 25 years, the country has been through some other critical economic and social situations leading to greater inequalities and poverty (for example, in 1989, 1992, 1996 and 2003). This time, however, the severity of the crisis brings into question the likelihood of a rapid recovery of the middle class, even in the event of a new favourable oil cycle in the short term.

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