The American Interest
Analysis by Walter Russell Mead & Staff
Socialism Kills, Venezuela Edition

On Saturday, 39 were killed and more were injured in an explosion at Venezuela’s Paraguaná Refinery, one of the largest in the world. This is only the latest in a string of accidents that the state owned oil company, Pétroleos de Venezuela (PDVSA), has racked up in past years. The New York Times reports that—once again—faulty state supervision of the facilities is to blame:

José Bodas, an oil union leader, said that the company had failed to invest in maintenance. “This has as a consequence the increase in accidents and tragic deaths like what we are seeing today,” he said in a telephone call to Globovision, a television channel associated with the political opposition to President Chávez.

It is clear that the Chávez regime has been squeezing every last penny out of the oil sector, but despite the “Bolivarian” socialist rhetoric promising equal distribution of this wealth, the money hasn’t just been used for social programs, but also to fund Venezuela’s expensive foreign policy, as well as its efforts to cover up the results of poor policy, rampant cronyism, and the general mismanagement of the public sector. When things go wrong, Venezuelan citizens are the ones who pay the price for the state’s poor choices.

Three things seem likely at this juncture: first, no one will be able to trust whatever “investigation” the Chavez government undertakes. It will be an obvious whitewash. Second, conditions for oil workers are unlikely to improve. Third, the usual crew of Chavez defenders in the United States, desperate after all these decades of misery and failure to point to some place some where, where authoritarian socialism isn’t a dreary charnel house and economic failure zone, will struggle to convince themselves that things are just fine in Bolivarian Venezuela.

 

Published on August 27, 2012 5:00 pm
  • Luke Lea

    “the usual crew of Chavez defenders in the United States. . .”

    I didn’t know there were any.

  • Brian

    Hydrocarbon facilities are massively complex operations filled with high pressure flammable chemicals. The slightest inattention to detail or overlooking maintenance requirements can lead to disaster.

    The performance of Operations & Maintenance (O&M) in these facilities is highly sensitive to incentives and deterrents – if you get it right you’ll have safe operations, and if you get it wrong you will injure or kill people, destroy equipment, and damage the environment. There are no exceptions to this, and there are no alternate explanations for why accidents do or do not occur.

    While no system of economic organisation will be immune to getting the incentives and deterrents wrong (see Macondo), socialist systems are particularly bad at it, as is reflected in a long, ignoble list of terrible events. Operations in socialist economies are especially compromised by competing priorities made explicit to Operations staff by politicized management. In capitalist economies, organisations thrive by producing benefits for a diverse group of stakeholders. If an Operations person sees a corroded flange and intervenes to shut down production and make the situation safe, they can expect to be recognised and rewarded by private organisations in a capitalist system. In contrast, in socialist economies, there is a single stakeholder – the state – and the incentives are mal-adjusted by highly politicized filters. If the same worker, with the same expertise, is in the same situation with a corroded flange in a socialist economy, they will need to very carefully think whether they will be rewarded for intervening or punished for sabotaging production for the people.

    I simplify to make the point, of course, but there is far more truth in the preceding paragraph than is commonly acknowledged.

    In short, the incentives for individual performance in a socialist system are precisely, and perversely, calibrated to ensure performance is poor. The results are apparent wherever socialism has been tried, from the blasted industrial environmental wastelands of East Germany to the bleak radioactive landscape around Chernobyl, to the explosion of Venezuelan refineries. The historical record of inferior performance in socialist systems is as clear as anything can be. The only real surprise is that people are still surprised by this entirely predictable outcome of the economic arrangements of societies.

  • Sol

    I wonder to what extent a privately-owned company does better than a public one in this sector, with the Gulf of Mexico spill as the latest example in mind.
    Besides, aren’t there success stories in state-owned companies as well (like Norway’s Statoil ?).
    I can admit that “socialism” in Venezuela is a mess, but the government is dysfunctional in the first place. You can compare with Gazprom in Russia.

  • John Haskell

    Wait, let me see if it works like this

    It is clear that [British Petroleum] has been squeezing every last penny out of the oil sector, but despite the rhetoric promising [un] equal distribution of this wealth, the money hasn’t just been used for social programs, but also… its efforts to cover up the results of poor policy, rampant cronyism, and the general mismanagement of the [company]. When things go wrong, [American] citizens are the ones who pay the price for [BP's] poor choices.

    Yeah, that works pretty well. With 15 dead at the Texas City refinery and another 11 on the Deepwater Horizon, the numbers are pretty close too.

  • Don

    Oil explosions of note:
    Richmond, CA. Aug 6, 2012 (and the last explosion in March 1999) were due to the socialism rampant in California. The call for regulation, from the socialistic environmentalists was to be expected. This is why we need to move oil refineries to places like Nigeria where capitalism is unfettered.

    “A final report on Chevron’s massive Aug. 6 refinery fire could potentially lead to prosecution of the energy giant and serve as an impetus for federal regulatory reform, investigators said Monday.
    “We want to take the lessons learned here to all refineries,” said Dan Tillema, lead investigator for the U.S. Chemical Safety Board, a federal agency that has been at the accident site since Aug. 7. Tillema and representatives from four other investigative agencies briefed the public and elected leaders on the status of their probe.”
    Contra Costa Times, Aug 28, 12

  • Don

    WRM: Hold yer breath for the blow up at the oil refineries in that socialist [vulgarity removed] hole Sweden!
    Sweden.

    Gothenburg Refinery, (125,000 bpd refining capacity) (st1)
    Nynäshamn Refinery, (90,000 bpd refining capacity) (Nynas)
    Gothenburg Refinery, (78,000 bpd refining capacity) (Preem)
    Lysekil Refinery, (220,000 bpd refining capacity) (Preem)

  • Number Six

    Is Haskell saying that Obama is to the USA what Chavez is to Venezuela ?

  • Percy Dovetonsils

    “I didn’t know there were any.”

    Luke, see responses #3 and #4 – and that’s after only four responses.

  • JohnK

    There will always be accidents. But the comparison with BP or Chevron isn’t valid here, because as the author notes correctly, the evidence of consistent underinvestment in everything in Venezuela is clear, not only in accidents like this but also in the flat to declining production there (and the consistent lies by Venezuelan officials that production is actually higher than everyone else believes it is.) Also, BP was punished for its actions: by the government, and by the marketplace. BP did underinvest in safety, and it paid a price for it and it admitted that its culture needed to be changed. Does anybody think Chavez is going to pay a price for this? Does anybody think that the culture under Chavez can ever change? That’s the difference.

  • Mark Buehner

    You forgot: “Well Venezuela may be an economic basket case, probably due to our imperialist trade policies, but they do have the best X in the world”, where X is schools/hospitals/universities or some other social program that the speaker would never personally be caught dead in.

  • JorgXMckie

    Luke Lea, you obviously don’t work in Academia. Too many of my leftist friends and colleagues *still* adore Chavez. Especially the one that are avid “poverty tourists.”

  • Brian G.

    What does Chavez gave to do with an accident? He wasn’t there. And Chavez is no different than Bush and Cheney, who caused record gas prices to make Big Oil rich and started two illegal wars in order to raise Halliburton’s stock prices. Instead of looking for leaders of other countries for stories, you should be talking about how Bush and the Republican criminals destroyed the lives of millions of women, children, minorities, gays, and the elderly with tax cuts for the rich and their cronyism.

  • Standfast24

    PDVSA has been subject to increasing political and economic interference for over a decade, the result: declining production, capable employees fleeing (when they can) and declining safety.

  • John

    The fact that the rest of the world combined has a similar oil-related fatality rate to that of Venezuela does not indicate that the rest of the world is no safer then Venezuela.

    If the free market countries have about 1 billion people in them, one would (crudely and naively) expect about 40 times the total number of fatalities.

    Of course, VM does not intend this example to be a demonstration, but an illustration–not a proof, but yet another data point confirming the failure of socialist economics.

    (And if socialist economics can work anywhere, it can work where there’s a huge natural resource for one-time export to provide an infusion of cash. That might be enough, for the time being, for Norway, e.g. B ut even that is not _typically_ enough, if Venezuela is any guide.)

  • Nate Hertel

    Wow, you’re right, Haskell…there is no difference between the mature technology of refining petroleum products in a decades old facility and cutting-edge drilling miles beneath the surface of the ocean.

    Do you think that the final engineering reports on the Deepwater Horizon accident were a whitewash to cover political favorites, too?

  • Old School Conservative

    The Chavez defenders are numerous. One need look no further than your local community college or high school civics teacher.

    The defenders of the old Soviet Union were rife in academia as well. I submit there are more unashamed communists on our campuses than anywhere else in the country.

  • Gringo

    Brian G.
    What does Chavez gave to do with an accident? He wasn’t there. And Chavez is no different than Bush and Cheney…

    The government-owned PDVSA was once a very well-run company- which is exceptional for a government-owned oil company. In 2003 Chavez took control of PDVSA, firing 20,000 PDVSA employees who had gone on strike. Chavez took control, so PDVSA is his responsibility. How has PDVSA done under Chavista control? Chavez has used PSVSA as his cash cow, neglecting necessary funding for drilling, maintenance and repair in the process.
    From BBC Mundo in April [my translation] Los problemas de Pdvsa, entre derrames y accidentes [PDVSA's Problems From Spills to Accidents

    Eddie Ramírez, who was PDVSA's director from 1998-2002 and now is the coordinator of the Oil People organization [Gente del Petróleo] says that in his time the Gross Frequency Index (IFB), which measures the number of workplace injuries per million man hours, was between 0.5 and 0.8. Last year the IFB was 9.40
    Chavez has put his own people in control of PDVSA, so Chavez is responsible for PDVSA. That simple.
    If you are really interested in learning about Venezuela, I strongly suggest that you consult the following English language blogs.
    Devil’s Excrement
    Caracas Chronicles
    Venezuela News and Views

  • Frank Arden

    Luke Lea @1,

    Sean Penn.

  • boqueronman

    Well put, Gringo. To further your point. The decline in maintenance and repair, i.e. efficient administration, has also resulted in declining production. Here is a piece of from the noted right-wing news tabloid NYT:

    “Mr. Chávez put his stamp on the company after an oil workers strike that began in late 2002 in part as a way to force him to resign. He weathered the strike and purged thousands of managers and workers from the company.

    Since then oil production has declined. Last year, PDVSA produced 2.6 million barrels of oil a day, one million barrels a day less than it produced in 1997, the year before Mr. Chávez was elected, according to the International Energy Agency.”

    Chavez and his criminal mafia are just the latest example of the truism that socialism democratizes poverty… and enriches the nomenklatura.

  • HeftyJo

    “Brian G says:

    August 28, 2012 at 11:28 am

    And Chavez is no different than Bush and Cheney, who caused record gas prices to make Big Oil rich and started two illegal wars in order to raise Halliburton’s stock prices…. the Republican criminals destroyed the lives of millions of women, children, minorities, gays, and the elderly with tax cuts for the rich and their cronyism.”

    Haha, Oh that wacky Bush and Cheney, it’s the gift that keeps on giving. You’ve been railing on him for 10 years and I no doubt you’ll do it for 10 more. Gas was $1.78 when Obama took office. Now its up to nearly $4. So does that mean Obama is looking to line the pockets of Big Oil? A dem takes office and suddenly you can hear nothing but crickets chirp from the left. And those evil wars that Bush started. Iraq was well on it’s way to being won before Obama took office. And Obama has vastily expanded the size of scope of the Afghanistan war and greatly increased the use of drone assassination strikes. Again, complete and utter silence from the left. And Obama’s finance commitees are like a who’s who of Lehmann Bros., Goldman Sachs, Fannie and Freddie Mae cronies. Oh, and don’t forget that the majority of people at Bain Capital are listed as having made hundreds of thousands of dollars in contributions to the Obama campaign. But oh no, we can’t talk about that because that doesn’t fit the narrative.

  • jkl

    Luke Lea Sean Penn, Oliver Stone. Noah Chomsky.
    Oil is rationed. You need a “chip” to buy it in frontier states.
    All staples are rationed and most are impossible to find but in the black market: mayz flour, milk, rice, cooking oil.Scarcity of meat, poultry and cheese.
    Drugs for diabetics against allegies among others are impossible to find.
    180 k people have been murdered since Chavez is president.
    Last week 30 prisioners died in jail when armed prisiones fought for the control of the jail.
    A judge for opposing Chavez orders was jailed without process and has been humiliated . She has cancer. The vaginal exam was practiced in front of 12 national guards with cameras.
    A bridge fell down last week. The whole easrt of the country is incommunicated. The bridge did not received maintenace for years.
    I would say what ai think oof 3 and 4 but i dont want this to be erased. But come yto live here. Yes, it is like living in the UK.
    Even the maffia managed Russia is better than this hell

  • teapartydoc

    Doesn’t Chavez know that all he has to do to make everything wonderful is to start imitating Sweden or the Netherlands? Everything is wonderful there. Where’s Thibaud to set him straight?

  • J1

    “I wonder to what extent a privately-owned company does better than a public one in this sector, with the Gulf of Mexico spill as the latest example in mind”

    The Ixtoc spill was about the same size; at best, govt owned oil co.s at don’t do any better than privately owned.

    Oh, did I mention: “Pemex spent $100 million to clean up the spill and avoided most compensation claims by asserting sovereign immunity as a state-run company”.

    I’ll bet BP wishes it could have done that.

    “Hold yer breath for the blow up at the oil refineries in that socialist [vulgarity removed] hole Sweden”

    Nobody said privately owned refineries were a problem (well, except John maybe); it’s government ownership that causes problems. Statoil is arguably an exception, though it has significant private ownership and is not run by government employees. Indeed, some of it’s operations are actually run by that paragon of corporate evil, Halliburton. In defense of socialist countries, it’s probably true that a refinery/oil company owned by the US government wouldn’t be any better than one owned by the govt of Venezuela.

    “Bush and Cheney, who caused record gas prices to make Big Oil rich”

    Price of gas when the current president took office: about $1.90/gal. Somebody’s done a pretty good job making big oil rich all right.

  • Brian

    #4 John Haskell:

    [Avoid personal attacks.] Anyone can point at individual incidents and say “See? See!” This means nothing. You need to look at actual statistical performance.

    Unfortunately, PdVSA’s performance is so poor that you can actually produce some statistics from publicly available reports.
    In 2012 to date, I have found records of seven accidents producing fatalities at PdVSA so far in 2012. A total of 55 people have been killed in these incidents, and 120 injured. The latest figures of PdVSA employment are 48919 people. Assuming they have worked 1400 hours each so far in 2012, that gives a fatality rate of 0.81 fatalities per one million worked hours. Even if you entirely exclude the recent refinery explosion, PdVSA’s 2012 rate is *still* 0.1 fatality per million hours.

    How does this compare to BP? Well, let’s see… hey, here is some useful information:

    http://www.bp.com/sectionbodycopy.do?categoryId=9036139&contentId=7066936&nicam=vanity&redirect=www.bp.com/chartingtool#/health-and-safety/Fatality-Rate-Group/?chartType=clustered&chartView=chart

    (Just as an aside, it is quite interesting to contrast the transparency of a western private company with PdVSA. I can’t really imagine PdVSA posting their statistics like this … or, if they actually did post any information, being able to believe anything).

    So, in BP’s worst year, 2005, when the TX City refinery explosion occurred, their fatality rate was 0.049 / million hrs, or about 16 times lower than PdVSA’s 2012 rate. And in 2011, BP’s rate was 0.005 / million hours, or 160 times lower fatality rate than PdVSA 2012. You can look at this any way you like, but PdVSA’s performance is poor, poor, poor. Completely ignoring their killing dozens in the refinery accident, they still have a rate twice as high as BP’s worst year in the past decade. And BP is not a high performer relative to private industry peers.

    Based on your post, I suspect you don’t really care about any of this. There are none so blind as those who will not see.

    #3 Sol:

    There are some competently managed state owned companies. Statoil is one. Aramco can be quite competent. A few others, although not Gazprom. Interestingly, PdVSA *used* to be one of the best run state owned companies. In 2000, they were comparable to any private company. That is true no longer – they have been run into the ground, and whatever competence they once possessed has been dissipated.

    The difference, in my mind, is “state owned” vs “state operated”. Statoil is owned by the state, but it is run as a private company, subject to the rigors of the market, and without political influence in the management, or looting of the treasury. “Old PdVSA” was run the same way. “New PdVSA” is run entirely differently, and the results reflect it – in safety, environmental performance, returns on investment, production rates, and any other metric you wish to look at.

  • Luke Weyland

    Socialism = sharing, working together to meet the challenges that face humanity.
    Socialism is about providing education for everyone. Heathcare for everyone. Housing for everyone. Food for everyone.

    Capitalism is selfishness. Loooking after youself, and forgetting about the beggar at your door.

  • Gringo

    #25 Luke Weyland:
    Socialism = sharing, working together to meet the challenges that face humanity.
    Venezuela’s murder rate in 1998:19
    Venezuela’s murder rate in 2011: 67.
    [murder rates are per 100,000 inhabitants]