The Politics of Institutional Change in Venezuela: Oil Policy during the Presidency of Hugo Chavez

Article excerpt

In December of 1998, Hugo Chavez was elected President of Venezuela with 58% of the vote. Promising to increase social spending and reduce state corruption, a major target of his campaign was Venezuela's large state-owned oil company, PDVSA. Along with many other presidential candidates, Chavez criticized PDVSA, calling it a "black box" that operated as a "state within a state," making oil policy decisions without concern for the Venezuelan population (Chavez 2005). Clearly, it was time for a change. But just how would that change be achieved? Was PDVSA strong enough to resist the influence of Chavez and maintain its institutional autonomy and neoliberal oil policies?

The goal of this study is to explain institutional change in PDVSA and Venezuelan oil policy since the election of Hugo Chavez. Drawing on institutionalist theory, we argue that although PDVSA's organizational culture represented a powerful obstacle to reform, a growing contradiction between PDVSA culture and widely held societal beliefs created a legitimacy problem that Chavez exploited to undermine PDVSA's traditional power. We will show how this legitimacy issue meshed with class politics to bring about comprehensive institutional change in Venezuelan oil policy. Empirically, this article draws on 21 semi-structured interviews conducted in 2006 with actors involved in Venezuelan oil policy.

The article begins with a historical discussion about the development of PDVSA and Venezuelan oil policy and its impact on contemporary oil politics. Then, drawing heavily on interview data, the article discusses issues of legitimacy and organizational culture as potential sources of institutional change within PDVSA. Lastly, the article addresses further political factors as they relate to change in Venezuelan oil policy before concluding that a claim to cultural legitimacy was an important variable in Chavez's achievement of significant institutional change.

Historical Background and Analytical Puzzle

In December 1998, Hugo Chavez was elected president of Venezuela with 58% of the vote. Promising to increase social spending and reduce state corruption, he made Venezuela's large state-owned oil company, PDVSA, a major target of his campaign. Chavez, along with many other presidential candidates, criticized PDVSA, calling it a "black box" that operated as a "state within a state," making oil policy decisions without concern for the Venezuelan population (Chavez 2005). Clearly, it was a time for a change. But just how would that change be achieved? Was PDVSA strong enough to resist the influence of Chavez and maintain its institutional autonomy and neoliberal oil policies? The goal of this study is to explain institutional change in PDVSA and Venezuelan oil policy since the election of Hugo Chavez.

Concessions to produce oil in Venezuela were first granted in the late 1800s, but it was not until 1919 that exportation began. The first Venezuelan oil policies provided favourable conditions for foreign companies to operate in the country. However, a growing democratic movement throughout the first half of the century pushed not only for the right to democratically elect a president, but also for the sovereign right of every Venezuelan person to the value derived from its national subsoil in the form of petroleum revenues (Betancourt 1978; Coronel 1983; Coronil 1997). Thus, incremental increases in royalties were the norm in the mid 1900s as a popular movement pushed for increased governmental control over Venezuela's oil resources. Venezuela became a stable democracy in 1958, and by 1976 the Ley de Nacionalizacion del Petroleo (Petroleum Nationalization Law) transferred ownership of all oil production within the country's borders to the state. Nevertheless, oil nationalization in Venezuelan was not as radical as it could have been. Rather, corporate structures that existed prior to nationalization were maintained while Article 5 of the Nationalization Law left room for foreign involvement in the Venezuelan oil industry as long as it was deemed to be in the interest of the Venezuelan state. …