Nationalization of Oil in Venezuela: Re-Defined Dependence and Legitimization of

Imperialism
Author(s): Vegard Bye
Source: Journal of Peace Research, Vol. 16, No. 1 (1979), pp. 57-78
Published by: Sage Publications, Ltd.
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 ISSN 0022-3433 Journal of Peace Research, No. 1, Vol. XVI, 1979

Nationalization of Oil in Venezuela

Re-defined Dependence and Legitimization of Imperialism

VEGARD BYE
International Peace Research Institute, Oslo*

Venezuela has been one of the leading proponents of a new international economic order.
As a major oil producer it was instrumental in the creation of OPEC. It has also realized a
basic element of a NIEO - the nationalization of basic economic resources. The oil
industry was nationalized on January 1, 1976, while the second-ranking export industry,
iron and steel, had been expropriated one year earlier.
In this paper the effects of oil nationalization in Venezuela are studied to establish whether
the previous structure of foreign dominance has been fundamentally altered. A set of
dominance indicators is defined and applied to Venezuela before and after nationalization.
The main conclusion is that dominance structures persisted, but with some differences
between indicators. The expected long-term effect of increased oil prices, oil nationalization
and the new development strategy, is that the degree of mono-production will be reduced,
whereas economic and technological penetration as well as dependence on foreign trade will
actually increase. This points to the need for more fundamental changes in power relation-
ships inside the country. Nationalization alone does not guarantee a development in the
interests of the majority.

1. Introduction New International Economic Order

One could expect nationalization to be the
absolute enemy of any foreign-owned eco-
nomic activity in a given country. National-
ization, as understood in this article, means
the transfer of property from a foreign com-
pany to the state; and this, taken literally,
should lead to the end of the activity of the
company in question. In reality, this is quite
evidently not the case.
The power position of multinational cor-
porations (MNCs) in the world economy at
large, and in the economies of Third World
countries in particular, is undisputed. As a
reaction to this control and power position,
the world has for years now been observing
a growing ambition on the part of periphery
states to have a more substantial say in
their own economic affairs. This has been
clearly expressed at various international
conferences, in the form of demands for a
* This article is a shorter version of the post-
graduate thesis written by the same author (in
Norwegian): Bye, Vegard, 1977. Nasfonalisering
av oljevirksomheten i Venezuela. En studie av
endringer i avhengighetsstruktur. Oslo: University
of Oslo, Institute of Political Science/International
Peace Research Institute, Oslo. (265 pages). The
article can be identified as PRIO Publication no
S-27/78.
(NIEO); the potential content of this ambi-
tion has been most clearly manifested
through the OPEC countries' drastic in-
crease of oil prices in 1973-74. A major
issue of the NIEO is the right of less-
developed countries to control their natural
resources: i. e. to nationalize formerly for-
eign-owned activity in this field. There have
been many tough disputes between Third
World governments and the home govern-
ments of most of the MNCs - USA, West
Germany, Japan - over this and other
issues of the NIEO, at the general as well as
at a more concrete level. On the other hand,
recently quite a few nationalizations have
taken place without serious conflicts be-
tween the nationalizing government and the
nationalized MNCs and their governments.
On the contrary, there seems to have been
a most open and cooperative atmosphere
surrounding the whole process. There is
therefore reason to believe that such na-
tionalization need not necessarily be consid-
ered as a serious threat to the power posi-
tions of the MNCs, nor of the dominant
internal groups and classes in the periphery
countries that have been relying on such
foreign investments for their own prosperity.

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58 Vegard Bye
The case of Venezuela is most interesting
in this regard. On the one hand, Venezuela
has been one of the most 'verbally militant'
countries in NIEO negotiations. As a major
oil exporter, it was the initiating country
behind the creation of OPEC; it has always
taken a leading position within this organi-
zation, aiming at utilizing its potential power
position to increase the exporting countries'
say and their oil prices substantially.
Even if Venezuela did not directly partici-
pate in the 1973 Arab boycott, its role in
creating the necessary conditions for this
efficient step should not be ignored (see
Acosta Hermoso, 1969-70; Chevalier, 1973;
Tugwell, 1975).
On the other hand, Venezuela has taken
the step towards fulfilling perhaps the most
crucial element of NIEO: nationalization of
the country's basic economic activity. The
Venezuela oil industry was nationalized on
1 January 1976. Mention should also be
made of the iron and steel, the country's
second most important export sector, which
was nationalized one year earlier.
The nationalization of oil in Venezuela
was clearly one of the most important and
far-reaching nationalizations so far to be
implemented by a Third World government.
Ever since oil exploration and production
started in Venezuela in 1917, oil has totally
dominated the country's economy; and oil
activity has been totally monopolized by the
world's oil giants.
Against this background, a detailed study
of the nationalization of oil in Venezuela
should be considered a major task. In this
article, our main focus will be on analyzing
the main effects of the nationalization. To
what degree has it led to change in the
power position of the MNCs, and in the
relations between MNCs and the State? In
other words, have there been any major
changes in the external structure of domin-
ance as a consequence of the nationaliza-
tion? Second, has nationalization led to any
changes in the internal structure of domin-
ance: i. e. in the character of the state and
the class structure of the country's social
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formation? It will also be necessary for us
to take a brief look into the main develop-
ment trends in the structure of dominance
- on both the external and the internal
level - leading up to the nationalization.
In other words: what changes have occurred
that has made it possible, advantageous to
external and/or internal power groups, per-
haps even necessary, to take this step? We
will also make some attempts at forecasting
the possible long-term effects on the domin-
ance structure of Venezuelan society in
general, effects that may be created by the
new development strategy founded on the
nationalization and the price-hike on oil
after 1973.
When referring to the concept 'structure
of dominance' (or'structure of dependence'),
what is meant is the basic Marxist (or neo-
Marxist) understanding of the existence of
a highly specific social formation in periph-
ery societies, totally unlike earlier 'stages' of
development in centre societies. This specific
kind of social formation has developed
through a long historical process where the
periphery societies have been constantly
adjusted to the needs of the centre societies
and exploited accordingly. This process of
adjustment, or the systematic incorporation
into the world capitalist system,1 has made
the structures of production in periphery
societies completely distorted, such that
they even to-day are unable to create a base
for real development. 'Real development'
here means organizing production in a social
formation in a such way that it, based on
present human and natural resources, can
be directed towards egalitarian satisfaction
of such fundamental needs as food, health,
house, elementary education, and work.2
2. The traditional external structure of
dominance
From playing an extremely minor role in
world economy before the start of oil pro-
duction, Venezuela rapidly developed into
an important actor on the stage of world
economy. As early as in 1929, the country
was the world's largest oil producer, with

10 % of total world production. From the
start, Venezuela's oil sector was completely
monopolized by the major oil corporations.
In 1929, Standard Oil of California
(SOCAL) and Gulf together stood for
54.8 % of the production, and Shell for the
remaining 45 %. In 1932, Standard Oil of
New Jersey (ESSO, laterEXXON) took over
SOCAL's interests; ever since then, these
three companies have been the dominating
ones in the Venezuela oil business. (NACLA,
vol. X (1976), No. 8, pp. 4-5.)
This, of course, meant that abruptly the
country's economy was completely pen-
etrated by external interests. The conditions
offered to the oil companies are estimated
to have been among the most advantageous
offered to any foreign enterprises in Latin
America at that time.
But even the small share of the oil in-
comes that remained in the country repre-
sented a considerable amount of money, and
this created the conditions for the emerg-
ence of a growing petty-bourgeoisie. Partic-
ularly the state bureaucracy and the intel-
lectuals were important in fomenting a na-
tionalist sentiment and ambitions for a
stronger state apparatus to cope with the oil
giants. The resulting changes in government
(see later) produced a certain restriction in
the freedom of the foreign companies.
During the three years of the Venezuelan
populist government (AD - Accion Demo-
crdtica) that came to power in 1945, the
possibility of nationalization was first dis-
cussed. The answer of President Betan-
court, who at that time was considered very
nationalistic, was the following:
Practically the whole Venezuelan economy and
an appreciable portion of government income are
based on the petroleum industry. Faced with these
realities, it would have been a suicidal leap into
space to nationalize the industry by decree.
(Quoted by Tugwell, 1975, p. 45).
This answer gives a clear picture of the
existing dependency: although the Govern-
ment could see it as a political objective to
nationalize, in practice it was simply im-
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Nationalization of Oil in Venezuela 59
possible because of the established relation-
ship.
With the coup d'etat that ended the
Betancourt government and initiated another
brutal dictatorship in 1948 - most of the
time headed by Perez Jimenez - it was
believed that the oil giants would regain
their absolute freedom of operation. This
also proved the case as far as expansion of
their activity was concerned. Production
volume doubled during the following decade,
and no restrictions were made on foreign
investments in any sector. But, interestingly
enough, state income was also doubled
parallelly, which means that the tax level
must have been kept unchanged.
When the military dictatorship was over-
thrown in 1958, and the AD leadership
stepped onto the stage once more, it was a
totally open question how the relation to
foreign capital would develop. All the polit-
ical forces in the country, from the centre
towards the left, were waiting hopefully for
political solutions totally contradictory with
each other. In retrospect, it can be con-
cluded that the outcome was a policy of cap-
italist consolidation in close alliance with
foreign capital. The major general tendency
in the development of external dominance
during that period was a strong and rapid
process of import substitution. Because of
the excess of oil incomes, Venezuela had
never had the structural prerequisites for
creating any substantial domestic industry
sector, as for instance Mexico, Argentina,
and Brazil had done in the 1930s. Now,
however, it became a political objective of
the leading domestic sectors, including the
Government, to use parts of oil money in an
effort to industrialize. A highly significant
characteristic of this process in Venezuela
should be emphasized. The process came
about, from the very beginning, by means
of foreign capital. Thus, the domestic in-
dustry market in Venezuela became inter-
nationalized before any indigenous, national
industry sector was allowed to develop. This
had vital repercussions on the development of
class alliances. It is important to notice that
60 Vegard Bye
the State in this period played an active role
in the foreign capital penetration of sectors
outside oil. Until Venezuela as late as 1972
became member of the Andean Pact and
thus subject to the fairly severe restrictions
on foreign investment effective in that or-
ganization till 1976, the Venezuelan State
allowed total freedom in transnational cap-
ital transactions. Import substitution thus
led first of all to a diversification of external
dominance.
The State policy in the oil sector in this
pre-nationalization period was very inter-
esting. From the outset, 'nationalization of
oil' was the slogan of broad popular groups.
This possibility was immediately ruled out
by the AD government, the arguments being
the same as during the first AD period.
Although there were several confrontations,
the government never really challenged the
oil giants. By means of a careful strategy of
experimentation, however, the premises for
nationalization were gradually created.
The strategy, though not consistent,
was based on three elements: First, to in-
crease government income from oil, partly
through increased production, partly through
increased taxation. Of these, the tax in-
creases were by far the most important, un-
like in the 1948-58 decade. The government/
company income split went in favour of the
government through various leaps cor-
responding to new tax laws, from 52/48 in
1957 to 87/13 before the dramatic price
hike of 1973. But this did not mean that the
companies' profit rate went down.
The second element in the strategy was
to achieve an increased say in determining
oil prices. This was first attempted through
the creation of OPEC, as described earlier.
By 1970, after a series of failures, the
government was at last able to enforce a
law establishing its right to fix unilaterally
the prices of oil produced in the country.
The third element, then, was an effort at
increasing the government's general control
of the activities of the oil companies -
volume of production, investment policy,
exploration, etc. A long struggle over this
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issue culminated with the passing of the
'law of reversion' in 1971, which stated
that all changes in the companies' opera-
tional activities needed prior authorization
by the government. The law also made it
clear that all concessions and properties be-
longing to the companies would revert to
the state with the expiration of concession
agreements in 1983.
The counter-strategy on the part of the
oil monopolies - who wished to maintain
their profits, their self-determination of oil
prices, and not least their general autonomy
against government intervention - consisted
of three elements: First, de-investment,
which made new investments in the industry
drop below the depreciation level for most
years after 1958. Second, reduction in pro-
duction volume, although this was used
more as threat. (The long-term tendency
during the period was in fact a considerable
increase in oil production.) The third ele-
ment, then, was to build an alliance with the
domestic capitalist sector, and through that
position launch campaigns each time the
government made new efforts to gain the
upper hand. This strategy, successful only
for a certain time, will be described later on.
Step-by-step, however, the monopolies
had to yield to the government. The con-
servative periodical Resumen has claimed
that the 1970 and 1971 oil laws meant a
de facto nationalization, and that the later
law of nationalization only formalized this
fact. Resumen also claims that after the
passing of these laws, the oil companies were
in fact in favour of nationalization, because
any system other than that prevailing be-
tween 1971 and 1975 would be better to
them. (Resumen, 25.4-75, p. 30.) Although
this seems an exaggeration, there is no
doubt that the companies gradually changed
their strategy from one of opposing na-
tionalization by all means to one of ac-
commodating themselves to a situation of
formal government control, and reducing
their real loss of position within this new
situation to a minimum (see later).3
To sum up the external structure of dom-

inance/dependence in Venezuela before the
nationalization of oil on 1 January 1976,
we will make use of seven indicators. In our
opinion, each expresses an important aspect
of the total structure.4
(1) Economic penetration. The foreign cap-
ital penetration of the Venezuela oil sector
can only be characterized as total prior to
nationalization. The world's largest enterprise,
Exxon Corp., controlled more than 40 %
of production. The three largest companies
- all among the world's Top Ten accord-
ing to Fortune - were responsible for 80 %
of production. The 'Seven sisters', of which
all but BP were active in the Venezuela,
controlled 88 %. As to country of origin,
US-based companies were responsible for
almost 3/4 of production, Great Britain and
Netherlands about 1/4, with only 2-3 % for
the host country. (Ministerio de Minas e
Hidrocarburos - (MMH) 1974, pp. 66-70;
1975, p. 54-70.)
With regard to refining capacity, the con-
centration was even more conspicuous. Here
the 'Seven sisters' controlled more than
95 %. As a consequence of the foreign-con-
trolled import substitution that took place
from 1958 onwards, foreign investments
were gradually diversified to non-oil sectors.
The Venezuelan economist Hector Silva
Michelena estimated that the 'real influence'
of foreign capital in the economy of the
country - i. e. the share of the economy in
one way or other penetrated through direct
investments, imported raw materials or
semi-produced articles, machines, patents
etc. - was more than 3/4 (H. Silva Michel-
ena, 1975, p. 109).
US dominance among the foreign in-
vestors was undisputed. It comprised 100 %
of investments in the second largest export
sector, mining, 68 % in both industry and
commerce, and 73 % in banking. (Blank,
1973.)
(2) Technological penetration. To give a
picture of the total technological dependence
in the Venezuelan oil sector before na-
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Nationalization of Oil in Venezuela 61
tionalization, it is sufficient to refer to some
of the conclusions in a report published by
the government's own research-institute for
oil technology, INVEPET (later INTEVEP)
(INVEPET, 1975). The task of this report
was to assess to what extent the oil com-
panies operating in Venezuela were depen-
dent on foreign-based technology, either
from the concessionaries' mother companies
or from specialized service companies. That
the domestically available technology was
totally monopolized by the giant's operation
units in the country was not even ques-
tioned.
The conclusions may briefly be summed
up as follows: The dependence on mother
conpanies or specialized service companies
- the latter frequently parts of the same
enterprises - was almost total in all aspects
of the oil industry: exploration, production,
and refining. This was also true for routine
operations, but even stronger in innovative
operations, and in research and develop-
ment. This fact notwithstanding, a signi-
ficant process of 'venezuelization' was going
on in the companies over the 15 years prior
to the nationalization: this is shown by the
fact that the percentage of foreigners on
their staff was reduced from 12 to 2.
(3) Trade partner concentration. It is not
possible to give the exact percentage of
Venezuelan oil exported to different coun-
tries, because a substantial share of the
crude oil is transported to the Exxon and
Shell refineries on the Netherland Antilles
(Aruba and Curagau, respectively) and re-
exported from there. But if direct export
from Venezuela and re-export from Aruba/
Curagau are taken together, about 50 %
went to the United States, another 13-14 %
to Canada, about 10 % to the EEC coun-
tries, and 17-18 % to Central America and
the Caribbean (Sources: Creole Petroleum
Corporation and MMH, various years).5
Out of USA's total oil import, around
30 % came from Venezuela (1973) - a
percentage rapidly falling from 58 % in
1963.
62 Vegard Bye
We can conclude that before nationaliza-
tion Venezuela was basically dependent on
the US market, whereas US dependence on
Venezuelan oil was gradually diminishing.
(4) Foreign trade dependence. Another
indicator of dominance/dependence is the
extent of foreign trade domination in a
country's economy. In the case of Vene-
zuela, this domination was undisputed, be-
cause the economy had been totally based
on the exportation of oil. In 1974, the total
value of exported goods was exactly 50 %
of the country's Gross Domestic Product
(MMH, 1975, p. 1). Even if this figure
might have been unnormally high that year,
it would still be around 40 in normal years.
The value of imported goods per capita
economically active was US $ 1476 in
1975. Sixty percent of it is means of pro-
duction (raw materials plus machinery);
53 % is means of production for the in-
dustry. (Rodriguez Trujillo, 1976, table 4).
(5) Mono-production. Venezuela is a coun-
try highly dependent on one product. This
has been the case ever since oil activity was
started. It is scarcely an exaggeration to say
that the Venezuelan economy is oil. Here
only three indicators of the situation before
nationalization will be mentioned.
Oil's share of Gross Domestic Product
- without taking into account economic
activities indirectly dependent on oil -
was 34 % in 1975 (down from 48 % the
year before, because of reduced produc-
tion).6 The share of government income
from oil - in this case also only in a direct
way - was 77 % in 1975 (down from
86 % the year before). Oil's share of export
incomes gives, of course, the most con-
spicuous figure (mono-export). More than
15 years after the initiation of a policy sup-
posedly geared towards economic diversi-
fication, 95.6 % of the export income still
came from oil in 1975. (MMH, various
years.)7 If the second most important ex-
port article, iron - also totally foreign con-
trolled till nationalization in 1975 - is add-
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ed, their total share of export incomes was
98.4 %.8
(6) External exploitation. By 'external ex-
ploitation' here we mean the total transfer
of value from the country where this value
is produced to other countries. Such transfer
can take three forms:
(i) transfer of surplus value: i. e. taking part
of the surplus value out of the country where it is
produced, so that it is accumulated abroad in the
central countries, instead of creating a base for
extended re-production in the periphery. This
phenomenom can be measured by the relation be-
tween invested foreign capital and profit the for-
eign investors take out of the country. For the
period 1964-73, the oil companies had an average
profit rate, in percent of net fixed assets, of about
32; this meant that their earnings caught up with
their investments every three years. All this prof-
it was not taken out of the country. Some of it
was re-invested. According to the most conser-
vative estimates, total profits after tax for the
period 1947 to 1975 were 51,345 million bolivares,
whereas total investments were 30,727 million boli-
vares.9 The difference - 20,518 million bolivares
(almost $ 4,800 million) - is what here is called
'transfer of surplus value' for that period.'0
(ii) Unequal exchange: i. e. the tendency for
the amount of work necessary in peripheral coun-
tries to exchange for goods produced by a constant
amount of work in centre nations to be steadily
growing.11 To measure this, we can look at the
exchange rate between a peripheral country's ex-
port and import goods over a given time-period.
For Venezuela, the development of this ex-
change rate was very negative in the period 1958
to 1970; from 1970 on, rising oil prices more than
caught up with rising prices on imported goods.
But although oil prices in 1975 were almost six
times those in 1970 - which of course, is a unique
case in the history of raw materials as far as
stable tendencies are concerned - the 'exchange
rate' in 1975 compared to 1958 was still clearly
negative. This can be shown by comparing the
price indexes of export and import goods for the
two years in question. If the relation between
these figures is considered equal (1:1) in 1958, it
was 1:0.79 in the favour of import goods by 1975.12
(iii) The third form of external exploitation is
the so-called invisible foreign services, which in-
cludes interests on foreign credits, payments of
foreign service like transportation, insurance, etc.,
payments for technology services in the form of
patent and licence royalties, etc.13 We have no
reliable figures on the total amount paid for these
services. As to Venezuela's total shipping costs,

their net negative effect on the balance of pay-
ments in 1975 was $400 million, this figure in-
cluding costs of insurance, charters, etc. (LAER,
vol. VI (1978) No. 5).
(7) Enclave-structure. By economic enclaves
we are referring to an economic structure
dominated by foreign-controlled economic
sectors not integrated into the rest of the
national economy. An extreme example of
such an enclave would be a sector where all
inputs except working force and or raw
materials were imported and all products
exported.
For Venezuela, I will make brief refer-
ence to the structure of oil refining. Since
the very beginning of their activity in the
country, the oil companies have followed a
strategy of spreading risks. This was
achieved by, among other things, situating a
large part of the refineries outside Vene-
zuelan territory. That is why the huge Shell
and Exxon refineries in Curagau and Aruba,
respectively, were constructed. These two
plants refine more Venezuelan oil than do
those on the Venezuela mainland. Their
existence is also a main reason why as much
as 70 % of Venezuela's oil export consists
of crude oil - which of course reduces the
spill-over effect for the rest of the economy
from what it could have been with a higher
degree of domestic refining. It also gives the
oil companies a greater power position. We
should note that the percentage of refined
products out of total export remained more
or less constant over the last 10 years be-
fore nationalization, even though refinery
capacity was substantially increased. This
means that the degree of actual use of exist-
ing refining capacity dropped dramatically,
from 95 % in 1970 to 56 % in 1975. (MMH,
1975, pp. 66, 68.)
3. The traditional internal structure of
dominance
We have pointed out that the early oil boom
in Venezuela hampered the growth of such
import substitution and national industriali-
zation as those that gained momentum in
other Latin American economies in the
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Nationalization of Oil in Venezuela 63
1930s. This also meant that no important
rise of nationalist elements within the bour-
geoisie could be observed. On the other
hand, despite incredibly advantageous con-
ditions offered to the oil companies, state
incomes from royalties and taxes grew
rapidly. This was the material base of the
emerging state bureaucracy, the main ele-
ment of the petty bourgeoisie that was to
play such an important role in constructing
an internal structure of dominance in Vene-
zuela. The other elements of the petty
bourgeoisie were the self-employed crafts-
men that moved from the countryside into
the towns, where they easily found prosper-
ous conditions in the boom economy; and
those employed in private trade, banking
and service activities of all kinds that also
flourished - very often on a speculative
basis - as an off-shoot of the oil business.
Taken together, these petty-bourgeois sec-
tors made up 38 % of the workforce out-
side agriculture as early as in 1935 - a
share that continued to grow to 54 % in
1950 (Rangel, 1970, p. 269).
The important thing about this emergence
of a sizable petty bourgeoisie, was that it
came about before the working class gained
any importance, numerically or organiza-
tionally. Venezuelan oil activity was highly
capital intensive, and it ruined much of the
agriculture. This started a rapid process of
urbanization. Without employment possibil-
ities in the towns, however, this only led to
urban marginalization, a problem that has
remained one of the most conspicuous social
aspects of Venezuela.
The combination of the final break-
through of capitalism as the dominant mode
of production and a gradual political liber-
alization, initiated after Gomez' death in
1935, led to a comprehensive class organi-
zation in the country. The first national
union congress was summoned in 1937,
and especially the number of industry
unions grew rapidly. In the beginning, the
Communist Party had the initiative in the
formation of unions; however, the new
populist party, Accion Democratica (AD),
64 Vegard Bye
soon took over the hegemony, partly be-
cause it was much more critical to the re-
gime.l4 When Confederacion de Trabaja-
dores de Venezuela (CTV) was created in
1947, AD was in total control.
The same thing happened in the country-
side. After a series of violent but unorgan-
ized and spontaneous riots, land occupa-
tions, etc. carried out by poor farmers and
farm workers (campesinos) in the 1930s,
AD started a huge mobilization campaign
among these groups, recruiting local cam-
pesino-leaders and integrating the local and
spontaneously created sindicatos agricolas
into the party structure. When the country-
wide Federacion Campesina de Venezuela
(FCV) was created in 1947 (the same year
as the CTV) the AD leadership was un-
disputed (Huizer, 1973, pp. 67-73, and
Duncan Powell, 1971, p. 286 ff.).
What kind of party was AD, then? How
was it able to gain the control of the popu-
lar masses in such a successful way?
The party was founded in 1941 by a
group of liberal intellectuals, with the rebel-
lious students from 1928 prominent.
Although the leadership was petty-bour-
geois from the outset, its programme at-
tracted much broader sectors of the popu-
lation. It represented a protest against the
old tyranny, the laissez-faire policy of the
military dictatorship and the traditional
bourgeoisie in general. Its platforms were
those of national capitalist development and
industrialization, protectionism instead of
free trade, heavier taxation - especially of
the oil companies - and of increased state
regulation of the economy. But these were
also the ideas of the new, but still very
weak, national urban-based industrial bour-
geoisie. One necessary condition for a na-
tional, inward-oriented (rather than out-
ward-oriented) economic development was
expansion of the domestic market, and this
necessitated a certain degree of social re-
form. Two aspects particularly were im-
portant in this respect: legalization of trade
union activity, and land-reform - which,
at the same time, secured massive support
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from workers and campesinos. This eco-
nomic programme, combined with intellec-
tual ideas of democratization, elected gov-
ernents, etc., made AD a typical Latin
American populist party, soon to become
the main social and political force in Vene-
zuela.
When a group of low-ranking officers
overthrew the military government in 1945,
there was no doubt that AD was to take the
lead in the new government. During the
three following years, the first steps towards
abolishing the oligarchical state and intro-
ducing a populist one were taken. But the
economic basis of the Venezuelan social
formation was still not prepared to allow a
final change of this kind: The traditional
sectors of the bourgeoisie, allied with for-
eign capital, were strong enough to over-
throw the AD government in 1948. The
populist movement, which then consisted of
a multi-class party and mass movements
among workers and campesinos, had not yet
grown into a populist pact, integrated into
the state apparatus. The mass movement,
though mobilized from above and under
control of a bourgeois and petty-bourgeois
party leadership, had during this three-year
period still protest and demand as its main
characteristics. Not least through quite ex-
tensive land reform and government back-
ing of the trade unions in their collective
bargaining with the newly-created em-
ployers' federation - Fedecdmaras - AD
maintained its mass support, obtaining 80 %
of the 'popular vote' in the 1946 elections.
With this mass basis still more or less intact
at the overthrow of the Perez-Jimenez Junta
in 1958, the AD leadership and the social
classes it represented were free to continue
their work of constructing a populist state,
with the party and mass movement inte-
grated into it. The fact that another party
- the Christian Democratic COPEI - also
gradually developed into a populist party
and had gained important mass support,
thus challenging the monopolist AD hege-
mony, does not falsify such an analysis.
Starting from this position, AD from 1958

on could start to transform the main function
of the mass organizations from mobilization
to control. This was clearly expressed
through the 1959 party programme. The
so-called agrarian thesis stated that the main
objective of the new land reform should not
be, as in 1945, to change the structure of
property in the countryside by distributing
land to landless and small peasants, but to
increase the efficiency of agricultural pro-
duction. The land reform of 1960, though
the most costly ever in Latin America, led
to concentration rather than distribution of
land (Duncan Powell, 1971, p. 296). The
campesino organization FCV was bureau-
cracized and made a corporative institution
of mediation. The so-called syndical thesis
had the same contents, limiting the function
of unions to negotiating for limited eco-
nomic improvements and stripping it of all
political protest function.
From the viewpoint of capitalist repro-
duction, the populist pact STATE-
PARTIES-TRADE UNION/CAMPESINO
ORGANIZATION is an ideal solution. It is
the best imaginable instrument to mediate
in what O'Connor (1973) calls the basic
contradiction in the capitalist state: that be-
tween accumulation (reproduction of the
capitalist mode of production), and legiti-
macy. These two needs are fulfilled through
the populist pact's functions of control and
mobilization, respectively.
An important question in this connection
is the following: How could the party leader-
ship and the union bureaucracy maintain
control over the organized masses when the
populist movement's main function was
changed from one of mobilization to one of
social control?
In the first place, the fact that mobiliza-
tion always (with the exception of the first
spontaneous riots in the 1930s) had taken
the form of mobilization from above evi-
dently made the populist movement much
easier to control and manipulate. Second,
the constitution of class structure among the
popular groups in Venezuela has been im-
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Nationalization of Oil in Venezuela 65
portant. Large parts of the urban industrial
proletariat are, relatively speaking, quite
well off, not least because of the capital-
intensive structure of the country's industry
and the high activity in construction. Aver-
age wages for those employed in the oil
industry - of course not only workers -
were US$ 1590 a month in 1975 (6840
bolivares) (MMH, 1975, p. 122). In con-
trast, 29 % of all employed outside agri-
culture in 1974 earned less than the official
minimum wage of 500 bolivares a month
(Chossudovsky, 1975, pp. 38-39). In the
agricultural sector, about 600,000 persons
had a monthly income of 250 bolivares or
less in 1970 (H. Silva Michelena, 1975, p.
121). To this it has to be added that many
low-income employees in reality are un- or
under-employed, such as street vendors, per-
sons sporadically employed in government
service-work or in other kinds of artificial
and totally unproductive occupations. The
real un-/under-employment is by Vene-
zuelan economists estimated at around
45 % of the potential labour force (ibid.).
When we realize that union leaders and
popularly recruited leaders in AD come
from the relatively privileged groups, which
to a certain extent have taken advantage of
the general economic development, it is no
wonder that the populist movement has been
'pacified'. We would in fact say that the
popularly recruited union and party workers
responsible for - or at least who have ac-
cepted - the bureaucratization of the pop-
ulist movement and the appearance of the
populist pact, can be labelled a labour
aristocracy.'5 The poor masses - be they
campesinos, workers in small and medium
industry or unemployed squatters in urban
slum districts - have never taken part in
this process. With almost one half of the
country's labour force without stable work
and one half of the working class unorgan-
ized, it is no exaggeration to say that the
majority of the people in Venezuela con-
sists of a poor mass marginalized economi-
cally, socially, and politically. They fall out-
side the populist pact, but the existence of
66 Vegard Bye
the pact makes it extremely difficult for any
alternative and independent mass movement
to be constructed.
Although this populist pact no doubt has
been the main guarantee for the reproduc-
tion of the capitalist mode of production,
against such revolutionary solutions as e. g.
were intended by the guerilla movement in
early 1960s, the capitalist state continued to
be under the command of the capitalist
class. This was clearly demonstrated by the
main political output from the state ap-
paratus, which Hector Silva Michelena has
described in this way: For each bolivar the
capitalists have invested in accumulative
production, the state has contributed 2
bolivares in infrastructure, communications,
strongly subsidized raw materials and cred-
its. Instead of directing the economy to-
wards popular consumption, the state dis-
tribution of the oil surplus (which made the
state a vitally important economic agent) led
to consolidation of the distorted process of
accumulation, consequently channelling this
surplus to the richest 5 % of the population.
(Silva Michelena, op. cit.)
This role of the state as protectionist vis
a vis capital accumulation, and not as a
direct participant in accumulation, should
be stressed. Between 1969 and 1973, only
4 % of state expenditure went to invest-
ment in direct productive activity (Proceso
Politico 2/1976, p. 26). It is therefore cor-
rect to describe the economic system in
Venezuela in this period as one with a very
comprehensive state intervention; but it was
not yet any state capitalist system. This
would have required that '... the principal
sources of surplus production are owned and
directed by the state and that the state be-
comes the principal source of capital ac-
cumulation within a market economy'.
(Petras, 1976, p. 393).
A main reason for the lack of state parti-
cipation in produuctive activity was the rela-
tion of strength within what Poulantzas
(1973) calls the power bloc, i.e. the different
fractions of the bourgeoise. Because of the
monopolistic and foreign-dominated charac-
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ter of the import substitution (described
earlier), a close alliance between foreign
and national capital continued during the
first ten years of the post-Perez Jimenez era.
This was symbolized through the oil monop-
olies' strong dominance in the employer
federation Fedecadmaras, where they be-
came members in 1959. Fedecdmaras gave
enthusiastic support to the monopolies in
all their conflicts with the Government over
oil policy, at least up to 1966. (Tugwell,
1975.) But suddenly, in 1970,when the most
drastic tax law against the monopolies so
far was submitted, this alliance proved not
so effective any longer. Fedecdmaras, though
still supporting the position of the monop-
olies, did not take part in any campaign
against the state, as it had before. Obviously,
an important change had occurred within
the power bloc.
The change no doubt had to do with the
growing importance of the state. Earlier,
the state bourgeoisie, the leading group
within the state bureaucracy, had repeatedly
tried to expand the state's power position
- and thereby indirectly its own. This was
exactly what the struggles with the oil mo-
nopolies were about. Gradually, the state
and the state bourgeoisie gained so strong a
position that the national capitalist sector
could no more ignore it. Itself too weak to
gain any hegemonic position in the power
bloc, the national bourgeoisie had to lean
on either the compradore bourgeoisie or the
state bourgeoisie. Now the time evidently
had come to change allies. The hegemony in
the power bloc had been taken over by the
state bourgeoisie. But, as we shall see, that
did not mean that the oil monopolies had
lost all influence in the power bloc.
What was clear now was that the stage
was set for a growing state influence in oil
policy, with nationalization the obvious final
step. The decisive event to warrant such a
step was the so-called oil crisis of 1973-74.
By Christmas 1973, two weeks after being
elected President, Carlos Andres Perez
hinted that the moment for nationalization
was approaching (Latin America, 28/12/73,

p. 409); and a few weeks after taking office,
in March 1974, he issued a decree stating
that the decision had in principle been taken
(Decreto No. 10-22, marzo de 1974, arti-
culo 1).16
4. The oil sector nationalized
The Presidential Commission took three
quarters of a year to draft a law proposition,
presented in December 1974. Another eight
months elapsed before the Congress of
Venezuela passed the law (August 1975),
and the law was made effective as of 1 Jan-
uary 1976.
Each of the former concessionaries was
simply substitued by a new 'national' oil
company, which maintained the structures
and functions of its MNC-predecessor.Y7
All the new companies are owned by a
holding company - Petroven or PDV -
in its turn owned by the State. As a matter
of principle, all Venezuelans with leading
positions in the MNCs took over the lead-
ing positions of the respective new com-
panies.
Let us mention one example. All the five
members of the Junta Directiva of the new
company Lagoven had from 25 to 30 years
of experience from Creole (Exxon), and
they had all occupied prominent director
positions in that company (El Universal,
19. 12. 1975). In fact, very few foreigners
had occupied such or other positions at the
time of the nationalization: only 37 out of a
total of 6000 Shell employees, for instance,
were foreigners. (El Universal, 30. 12. 1975)
(Compare Vernon, 1971, p. 149).
Apart from the fact that the organizational
structure, the personnel and thus supposedly
the ideology of the state-owned companies
appears identical with that of their respective
MNC predecessors, the oil monopolies have
maintained even stronger tools to control
and profit from oil activity in Venezuela
after it had officially been nationalized. I am
here referring to the agreements on tech-
nological service and the sales contracts
established.
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Nationalization of Oil in Venezuela 67
4.1. Sales agreements
Before nationalization, about 90 % of the
oil produced in Venezuela had been ex-
ported (MMH, 1975, pp. 54 and 89). The
sale of this oil abroad was even more monop-
olized by the vertically integrated oil cor-
porations than any other part of their
activity.
According to the nationalization law,
diversification of markets should be a major
objective. This was intended as an attempt
to reduce Venezuela's dependence on ex-
port to USA and other large western cap-
italist countries. These are countries where
the possibilities of establishing 'direct mar-
kets' (another objective) are relatively il-
lusory.
Given the established marketing struc-
ture, however, it seemed almost impossible
for the state companies to achieve the ex-
port objectives set out by the new law. The
alternative was to enter into agreements with
the newly-nationalized corporations on for-
eign sales. These agreements (Los acuerdos
de Comercializacion Petrolera) have a dura-
tion of four years, but the exact volumes
and prices are fixed every three months. (The
Economist, 27. 12. 1975, Special Survey,
p. 14.) The most important agreement is the
one with Exxon. It embraces 965 000 b/d,
of which two thirds is crude oil. In fact,
very few details are known about these
agreement, but there exist agreements with
Shell, Gulf, Mobil, Texaco as well as with
some smaller companies (PIW, 12. 1. 1976).
The agreements give the government a
right to reduce its sales to them by 10 %
each year after nationalization, starting in
1977. But even if the efforts of PDV (the
state holding company) to find more in-
dependent customers seems successful so
far, it should be emphasized that the former
concessionaries are still responsible for
marketing of three-quarters of the country's
oil export.
4.2. Technological services contracts
PDV has established contracts for delivery
of technological services with the mother
68 Vegard Bye
companies of each of the former earlier con-
cessionaries. In reality, these contracts freeze
the old 'feudal' pattern of the country's oil
industry. Services offered by Exxon are
made available for Lagoven only, Shell
services for Maraven, Gulf services for
Meneven, etc. The contracts have been kept
totally secret, and the political institutions
have never had opportunity to discuss them.
The major companies have established their
own service companies in Venezuela to ful-
fil their commitments. As far as Exxon is
concerned, PIW wrote (12. 1. 76):
In return for a fee, Exxon under its separate
technical assistance agreement will provide a
'broad range of technical services' to Lagoven, the
state firm now operating in the nationalized assets
of Exxon's Creole. Exxon will 'lend' Lagoven up
to 150 employees (who will work for Lagoven).
In addition, Exxon will base 35 employees in
Caracas in its new Exxon Services Caracas, headed
by former Creole directors, to arrange services for
Lagoven which will be provided through the new
Exxon Sevices Co. in Coral Gables, Florida. Exxon
will also help Venezuela set up a 'petroleum
research capability'.
With the establishment of the new com-
pany, only three of the foreign-recruited
Creole-employees lost their jobs because of
the nationalization (International Herald
Tribune, 15. 11. 76).
Despite the great secrecy surrounding the
contracts, some important details have
gradually been unveiled. The Leftist journal
Proceso Politico has claimed to be in pos-
session of the texts of agreements, and has
described them in detail (Proceso Politico,
no. 4-5, 1977, pp. 55-85). The 'Euro-Com-
munist' party MAS claims to have unveiled
a contract between PDV and Shell (LAER,
vol. V No. 25, 1977).
What becomes clear from these agree-
ments, which are also valid for 4 years, is
that they only grant the national operating
companies the right to use exactly the same
technology as that used before nationaliza-
tion, for exactly the same type of produc-
tion, in exactly the same volume as before.
In may cases, this also embraces technology
originally created in Venezuela. Transfer of
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new technology must be agreed upon se-
parately. It is explicitly forbidden to make
technology available for operators other
than those who have taken over the conces-
sions of each MNC. According to the agree-
ments, the former concessionaries will take
part in the creation of research institutes,
which means they will have free access to
new technological innovations that might be
made in the nationalized oil industry. These
contracts represent clear proof of the mon-
opolies' successful strategy of guaranteeing
their role in the nationalized oil sector.
Another aspect of the contracts is the
payment the MNC's receive for their serv-
ices. As it concerns already-known tech-
nology, and as almost all the related costs
- e. g. salaries - are paid additionally,
such payment can be considered almost a
net profit. It has also been considered an
extra hidden indemnification, over the four-
year period 1976-79 amounting to an ad-
ditional two thirds to the official indemnifi-
cation of 1 billion US dollars. (This calcula-
tion is based on information in PIW, 12. 1,
1.3 and 12. 4. 76). Interestingly, the com-
panies themselves also consider this pay as
an additional indemnification (PIW, 2. 2.
76), contrary to the government's own posi-
tion.
4.3. The MNC's influence on the nationaliza-
tion process
Although the concessionaries were not
formally represented in the decision-making
process leading up to nationalization, they
played a decisive role in formulating the
structure of the nationalized oil sector. In
the first place, they were - through Fede-
cdmaras - indirectly represented in the im-
portant presidential commision, the legal
proposal of which was accepted with one
important exception (see later). But the
most important channel of influence on the
part of the concessionaries was the direct,
secret negotiations that took place between
them and a high-level governmental com-
mission in parallel with the formal process.
As early as in April 1974 - one month

after the appointment of the presidential
commission - these negotiations started,
with the governmental part represented by
the Minister of Mining and Hydrocarbons
and the future President and Vice-President
of PDV. Two of the participants were also
members of the presidential commission.18
After the nationalization law was passed in
August 1975, the same high-level commis-
sion and the concessionaries entered into
negotiations on three issues: (1) the amount
of the indemnifications, for which only very
vague criteria were established in the law;
(2) the technological service contracts; and
(3) the sales agreements. There is no doubt
that these issues, plus the question of article
5 in the law (see below) were considered
together, and that a 'package solution' was
agreed upon.19
The only issue that provoked discussions
- and indeed fundamental contradictions
within the party system - with relation to
the nationalization law, was article 5. In the
presidential commission's proposal, it was
clearly stated that no private entities were
allowed to take part in oil activity after the
nationalization. The establishment of mixed
companies was explicitly rule out. The only
opposition to this article in the presidential
commission came from the representative of
Fedecdmaras. It is worth noting that per-
sons belonging to AD were in majority in
the commission. In the period from De-
cember 1974 through March 1975, the
government and the AD leadership were
obviously put under strong pressure from
Fedecdmaras and the concessionaries to
change their position; a pressure that proved
successful. In March, President Perez sug-
gested a change in the disputed article totally
in line with Fedecdmaras' proposition, thus
allowing private participation on certain
conditions. The suggested change was ac-
cepted by the AD party leadership - which
certainly had taken part in the formulation
of it - and by all the representatives of
different organizations and interests in the
commission belonging to AD. Among those
were the trade union representatives, who
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Nationalization of Oil in Venezuela 69
consequently found themselves defending a
position that three months earlier only had
been held by the monopolies and the em-
ployers' federation. All the opposition
parties, however, defended the original text
proposed by the presidential commission,
and set up a mammoth campaign against the
government on this issue. In the end, of
course, the President's proposal was made
law by the AD majority in Congress.
In retrospect, however, this conflict
seems mostly symbolic. So far, there have
been no signs that the opening for mixed
companies will be utilized. The sales and
services agreements would have been ac-
ceptable also according to the original pro-
posal, and private participation in the petro-
chemical industry is not affected by this
law. Even so, however, this conflict was a
useful demonstration of important principle
contradictions in the party system, as well
as of the functioning of the populist pact
and the MNC's influence on the decision-
making process.
5. The Fifth National Plan
Venezuela's development strategy, based on
the new economic and political situation
created primarily by the enormous increase
in the country's incomes after the 1973-74
oil price hike and the nationalization of oil
(and iron), is reflected in the Fifth National
Plan for the period 1976-80 (Gaceta Oficial
No. 1.860 Extraordinario 1976). Here, we
will only highlight the most outstanding
aspects of the plan. For this purpose it may
be convenient to distinguish between four
different development objectives inherent
in it.
(1) There will be an enormous expansion in
the productive activity on the part of the
state. As pointed out earlier, the state has
played an important role in the Venezuelan
economy from the very start of the oil
activity, but this role has by and large been
limited to preparing the conditions for
private capital. During the period 1970-74,
the state's share of gross investments was
32 % (Banco Central de Venezuela, 1974),
70 Vegard Bye
whereas this percentage is meant to reach
an average of 53 % during the plan period
(Gaceta Oficial op., cit., pp. 17-18). This
means that the state sector now is to be
leading in production activity. This impres-
sion is particularly clear regarding sectors
like consumer durables, oil, and mining.
(2) The expansion in public activity will be
concentrated to the export-oriented heavy
industry. This strategy emerges from the
existence of the following three factors:
availability of cheap energy resources; vast
deposits of natural resources like oil, iron
ore, and bauxite in the country itself or in
neighbouring countries; and the enormous
financial capacity of the state. The infra-
structure built before nationalization is also
an important factor. Total public invest-
ments planned for the period amount to
$28 billion, of which 57 % will go to oil,
mining, iron, steel and aluminium plus elec-
tricity (ibid, p. 20). The export of metal in-
dustry products (aluminium and steel) will
make up 29 % of the total value of industry
export in 1980, up from 1.3 % in 1975.
Also the export of food and means of
transportation, especially private cars, will
rise drastically. On the other hand, oil- and
carbon-based products will fall in relative
share of industrial export from 80 % to
40 % (ibid. p. 45-46).
Altogether, it seems clear that a new ac-
cumulation model is arising, based on an
export-oriented development of the heavy
industries under strong public sector domin-
ance.
(3) The prevailing trend of the accumula-
tion model of 1958-75 was import substitu-
tion. This required an extension of the
domestic market, and thus a certain distribu-
tion-oriented policy. In statistics, this was
expressed through the fact that two thirds
of the state expenditures were 'current ex-
penditures' ('gastos corrientes' - as op-
posed to 'capital expenditures'), and that
almost the half of this was 'social policy ex-
penditures' (Proceso Politico, 2/76, pp. 25-
26). The new accumulation model of the
Fifth Development Plan no longer requires
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the same emphasis on social distribution,
because the domestic market will not be
as important as before. It comes as no sur-
prise that social expenditures now will be
reduced, as President Perez himself declared
in a statement to the 23rd Annual Congress
of Fedecamaras:
The Government has committed itself (...) to
reduce the increase in current expenditures from
12 % over the last five years to 5.2 % over the
coming five years. This means that 85,288 million
bolivares (almost $20 million - V.B.) will be
gained for capitalization, a part of which will be
used to improve the financial activity of the state.
(El Nacional,23.5.76, my translation).
This probably means that social policy
expenditures will fall in relative terms: a
fact which gives a good indication of how
the oil incomes will be used in Venezuela
and whom they will serve.
(4) The distribution of labour between state
and private capital is fairly well spelled out
in the plan, and further specified in the
President's second message to the Congress
(Perez, 1976). For the sake of illustration,
the main principles to be followed in the
petrochemical industry may be referred to.
The industry is divided into three groups,
according to degree of processing. In the
category of low-degree processing, the state
will in principle have monopoly, though
there is an opening for private participation
of up to 20 % in exceptional cases. In the
medium category, the maximum share of
private participation is 49 %, whereas in
the high-degree processing petrochemical
industry there are no limits whatsoever for
private participation. About the same struc-
ture is proposed for the iron and steel in-
dustries. The primary function of private
- not least foreign - capital will be the
same in these sectors as in the oil sector: to
guarantee technology and international
markets.
6. The post-nationalization external struc-
ture of dominance
To sum up the main effects of nationaliza-
tion, we shall now return to the seven
indicators of external dominance used in
 Nationalization of Oil in Venezuela 71

section 2. It is of course too early for any
final assessment of the effects of national-
ization on the dominance structure. The
intention of this exercise in comparison is
only to see whether the premises of the
different indicators have changed substanti-
ally through nationalization. Accordingly,
it is a question of a qualitative rather than a
quantitative test. We will also attempt to
assess the total and long-term effect of oil
bonanza, nationalization, and the new
development plan on the external domin-
ance structure in the Venezuelan social for-
mation at large. Our conclusions are set
out below, in Tables I and II respectively.

Table I. Effects of the oil nationalization on the structure of dependence in the

Venezuelan oil sector

Almost
Indicator abolished Reduced Constant Increased

Economic penetration x

Technological penetration x

Trade partner concentration x

Dependence on foreign trade x

Mono-production x

External exploitation Xl)

Enclave-structure x

1) This conclusion, meant to be valid for the first 4-5 years after nationalization, is
contrary to what government sources as well as the MNCs state, but they seem to
exclude several important aspects from their calculations. Over some years (5-10
years), it is probable that external exploitation in the nationalized sector will be
reduced.

Table II. Expected long-term effects of increased oil prices, oil nationalization, and
new development strategy on the structure of dependence in the Venezuelan social
formation.

Difficult to Increased
Indicator Reduced Constant determine

Economic penetration x

Technological penetration x

Trade partner concentration x

Dependence on foreign trade x

Mono-production x

External exploitation Xl)

Enclave-structure X2)

1) Contradictory tendencies make it difficult to determine total effect.

2) An economy consisting of various enclaves instead of one.

6.1. Economic penetration investments went to the oil sector. From the
Economic penetration in the country's dominating investor country, USA, only one
dominating sector was almost eliminated third of the investments were in the oil sec-
through nationalization: from 98 % to zero. tor (MMH, 1975, p. 18). Because of the
This is, of course, the most conspicuous diversification of foreign investments, then,
consequence of nationalization. But outside the global effect of nationalization on this
the oil sector, foreign capital will play an indicator is not as strong as it first might
increasing role in the Venezuelan economy; seem to be. During 1976 and 1977, the terms
by 1974, less than a half of total foreign of foreign investments have been substan-

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72 Vegard Bye
tially liberalized, first through a revision of
the so-called Decision 24 in the Andean
Pact (LAER, vol. IV (1976), No. 45), later
through unilateral liberalizations (LAER,
vol. V (1977), No. 8). Another aspect of
economic penetration is foreign borrowing,
which because of the ambitious investment
objectives in the Fifth Plan will reach con-
siderable dimensions during the Fifth Plan
period. The planned amount to be bor-
rowed is more than $ 4.5 billion (LAER,
vol. V, (1977), No. 5). This means that a
new form of economic penetration is
emerging in Venezuela.
6.2. Technological penetration
Technological penetration in the oil sector
seems more or less constant, despite nation-
alization. The national operation companies
are more or less administratively identical
with their MNC predecessors, and the serv-
ice contracts indicate that the same 'feudal'
dominance structure regarding operational
technology will be retained. Even if the
national units gradually will be able to run
routine activities without external assistance,
the centres for development of new tech-
nology will still be in the MNCs. This is
particularly important, as it will be an ob-
jective to change the patterns of the coun-
try's oil industry.
In the rest of the economy, the outward-
oriented strategy of development will ab-
sorb as much foreign technology as pos-
sible, even though the national authorities
will certainly be aware of the new 'codes of
conduct' that Third World governments are
pressing for in their relation with MNCs. In
total, however, there is reason to believe
that technological penetration will increase.
6.3. Trade partner concentration
The sales contracts established between the
former concessionaries and the national oil
companies at first seemed to indicate that
the trade pattern would continue exactly
the same as before nationalization. So far,
however, the national companies have been
quite successful in marketing a substantial
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share of the oil outside the traditional chan-
nels. This share is expected to reach 30 %
in 1978, which opens possibilities of diver-
sifying the markets. Several interesting ap-
proaches have been made, and of special
interest is an agreement with Japanese trade
companies (PIW, 8. 3. 76). It seems prob-
able, therefore, that nationalization may
facilitate diversification of the export mar-
kets for oil, which was clearly established
as an objective in the law.
As to the rest of the economy, it is im-
possible to say anything definite about pros-
pects for trade partner diversification.
6.4. Foreign trade dependence
Nationalization as such does not influence
this indicator. The development model de-
scribed, however, will definitely maintain
and perhaps even increase dependence on
foreign trade, as it is clearly based on out-
ward-oriented growth. There are no objec-
tives like self-reliance to be traced in the
Fifth Plan.
6.5. Mono-production
This indicator is, like the former, not di-
rectly influenced by nationalization. But the
cut in production volume that occurred
parallel with nationalization will probably
reduce the relative importance of oil for
export as well as for the economy in general.
The general development strategy, however,
will no doubt reduce the relative importance
of oil substantially, although this will con-
tinue to be extremely high for a long period.
We must not forget that it is oil which is
to finance the development of the rest of
the economy.
6.6. External exploitation
The effect of nationalization on this im-
portant indicator has been a disputed ques-
tion. The MNCs say they lost on it (El
Nacional, 28. 7. 76, concerning the case of
Exxon), and the government says the coun-
try's income has increased (ibid., 2. 1. 77,
referring a speech by the President). These
two sources, thus, are in agreement. On the

other hand, several economists in Venezuela
claim that the country has been getting
lower incomes from the oil activity the first
years after the nationalization. This is based
on two kinds of calculations. In the first
place, it seems that the fees the MNCs re-
ceive through the service contracts repre-
sent more money than the surplus value
they were taking out of the country (net
profits minus re-investments) before na-
tionalization. Second, from the viewpoint
'national oil income',20 the conclusion seems
to be the same. Although the size of this
income increased substantially from 1975
to 1976, the new investments that now have
to be made by the State (according to the
Fifth Plan) are higher than this increase. On
the minus side, the indemnifications should
also be added, particularly as the invest-
ments had been paid back in the form of
profits several times before the nationaliza-
tion. The total indemnifications amounted
to 4,253 bill. bolivares (approximately 1 bil-
lion US $). Most of it was to be paid over
a period of five years, with an interest rate
of 6 % p. a. (MMH, 1975, pp. 147-148). So
altogether, it seems that the state incomes
will be considerably lower at least the first
years succeeding the nationalization than
they had been before.2'
As far as unequal exchange is concerned,
the nationalization as such had no effects.
The enormous improvement through the
price hike, on the other side, is gradually
being compensated through the price in-
crease on imported goods. With regard to
invisible foreign services other than service
fees and indemnifications, no immediate ef-
fects can be predicted; but in the long run,
there is reason to expect that the country
gradually will increase its capacity to man-
age the services it now borrows from for-
eign companies, like transport and security.
The quite extensive foreign borrowing, how-
ever, is a new form of foreign services,
which will lead to substantial foreign ex-
ploitation in the form of interest payment.
The tendencies in the economy at large
are quite contradictory as far as foreign ex-
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Nationalization of Oil in Venezuela 73
ploitation is concerned, with the price hike
as a positive factor, and foreign borrowing
and increased foreign investments in non-
oil sectors as negative ones. The total long-
term effect is therefore difficult to foresee.
6.7. Enclave-structure
Although changing the pattern of refining is
desired, technological dependence stands in
the way. It should not be too difficult,
though, to increase the export share of re-
fined products, by full use of actual refinery
capacity.
The new industrial strategy will lead to
increased manufacture based on the coun-
try's raw materials, oil and iron. This devel-
opment, howevers, will be extremely out-
ward-oriented, regarding both inputs and
outputs (imported technology, machinery
and to a large extent capital; export of the
products). The total effect therefore would
seem to be the creation of several enclaves
in the Venezuelan economy instead of one,
each being an extension of the world econ-
omy, without strong linkages within the
country.
To sum up the picture shown in Tables
I and II, then, we can say that nationaliza-
tion will reduce external dominance in the
oil sector somewhat, but in no way elim-
inate it. In the Venezuela social formation
as a whole, the total effect of price increase,
nationalization, and new development strat-
egy can be expected to yield increased rather
than reduced foreign dominance or depen-
dence. The two Tables should help illustrate
what is meant by the term redefinition of
the structure of dominance.
7. The new internal structure of dominance
The effects of nationalization and related
events on the internal structure of domin-
ance were less conspicuous than were the
effects on the external structure. But even
so, they were not necessarily less important.
Nationalization, at least in the form it took
in Venezuela, was certainly a brilliant way
of mediating the conflict within the cap-
italist state between accumulation and legit-
74 Vegard Bye
imacy. As far as accumulation is concerned,
it was evidently necessary for the state
bourgeoisie to come to an understanding
with the MNCs to guarantee efficiency of the
nationalized industry. That explains the
secret negotiations and the modification of
article 5. From an accumulation point of
view, nationalization has doubtless been a
great success.22 In regard to legitimacy, per-
haps the main motive for nationalization, the
effects are obvious. The anti-imperialist po-
tential among the working class has been no
negligible factor in Venezuela, despite the
absence of strong leftist groups. It is evi-
dent that the MNCs' almost total control of
the export sector of the national economy
would have been an extremely awkward
fact to live with on a long-term basis. The
unions had long demanded nationalization,
and anti-imperialist demagogy had long been
a necessary ingredient in most political
campaigns in Venezuela, although mostly
in the shape of nationalism. By nationaliz-
ing the oil industry, then, the political and
economic system regained its national pride
and could claim that the country's economy
had been brought under national control.
At least for a while, anti-imperialist demands
and sentiments seen to have been satisfied.
The system has secured its own legitimacy.
The system that has secured its legitimacy
does not comprise only the state and the
political apparatus, however. Even more
important was nationalization as a legitimat-
ing factor for the MNCs and their future
stake in the national economy, inside as
well as outside the oil sector. The MNCs
have succeeded in allying themselves directly
with the state bourgeoisie, whose hegemony
in the power bloc after the nationalization is
beyond doubt. This in fact means that the
populist pact has been co-opted into the
transnational economic system. One may
speak of a populist pact in its second and
extended phase, comprising MNC-STATE-
PARTIES-UNIONS. The argument of
unions, government, and directors of na-
tional oil companies is the same. Now that
the oil is national property, national con-
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sensus must replace class struggle and anti-
imperialism. The MNCs are now able to
execute social control over large parts of
the working class formerly in objective and
subjective contradiction to them; parts that
therefore had had to be controlled by means
of force.
8. Conclusion
If the history of imperialism can be very
roughly divided into two phases, the first of
them being the traditional colonial pattern
and the second neo-colonialism character-
ized by import substitution and distorted
industrialization, one may say that the so-
called New International Economic Order
will be the third phase. This implies that we
do not consider the NIEO any real confron-
tation with imperialism, and even less do we
think that it represents any break with it.
The question then arises: Why do the
changes - from the first to the second
phase and from the second to the third -
come about? Are they, as some argue, a
strategic goal of imperialism itself? We think
Samir Amin has given quite a good answer
to this question, as far as the first transition
is concerned:
The transition from the first to the second phase
of imperialism was not 'planned' by the monop-
olies: it was imposed by the national liberation
movement through which the bourgeoisie of the
peripheries won, against imperialism, the right to
an industry (Amin, 1977, p. 12).
Amin is probably also correct in suggest-
ing that the MNCs did not deliberately
create the new international division of
labour that will be the result of the NIEO.
It has been an objective outcome of the
international and dialectical development
of the forces and relations of production.
This does not mean that the MNCs, the
principal agents of the two latest phases of
imperialism, have lost on the development
from one phase to the other. Neither does it
mean that they have been unable to take a
substantial part in the formulation of the
new 'orders'. In fact, the development of

the oil sector of Venezuela shows that the
oil giants - the world's largest MNCs -
have had a decisive influence on the design
of 'economic nationalism'. This was the case
when the first change took place (the oil
reforms of 1942/43 and 1945, see Tugwell,
1975, p. 43), and not least as regards the
1976 nationalization discussed in this
article.
Another conspicuous aspect is how suc-
cessful the MNCs have been in preparing
themselves for the phase to follow, in order
to guarantee their future role. By a com-
bination of leaving the operation of the
subsidiaries to national staffs and increas-
ing the technological dependence of the
subsidiaries on the mother companies and
service companies - often owned by the
same corporations - nationalization could
be carried out without threatening the control
position of the MNCs. Their conglomerate
structure and vertical integration, which
secures virtual control of all levels from
production, via refining and manufacturing
to marketing, has been an important factor
in enabling the MNCs to maintain their
positions.
It is clear that the power relation between
the MNCs and the state has changed over
the 60 years of the Venezuelan oil economy.
Up to 1935, the companies got 92 % of the
incomes produced in the industry, and the
state only 8 %. The two last years prior to
nationalization, the relation was a contrary
one: 94 % went to the state and 6 % to the
companies. This is a development the giants
gradually - though not without resistance
- have had to accept. But their control
position and future access to the oil re-
sources have been secured, through the or-
ganizational structure of the nationalized
oil sector.
The really brilliant aspect of nationaliza-
tion - and maybe of the NIEO in gen-
eral - is the way it co-opts economic na-
tionalism and even anti-imperialism into
imperialism itself. Whereas the populist pact
in the second phase of imperialism was
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Nationalization of Oil in Venezuela 75
limited to a national system of social con-
trol, it has now been extended to an inter-
national system of social control. One ef-
fect of this may be a reduction in depen-
dence on physical violence for holding the
imperialist system together, although that
eventually may create serious problems for
one of the cornerstones of this very system:
arms production. But the case of Venezuela,
one of the most verbally militant defenders
of NIEO, clearly shows that social violence
will not be reduced. The victims of that vio-
lence, however - in the case of Venezuela,
the large majority of the population - are
left outside all channels of political and
social mobilization: they are marginalized.
Therefore, they cannot represent any threat
to the system, at least not till the popular
groups now part of the pact with the state
and the MNCs break out of that pact and
ally themselves with the poor. The national-
ization of oil was intended to rule out such
a development. So far, it seems to have suc-
ceeded in doing so. The decisive question is
whether the immense public investments
will start to pay off early enough to avoid
serious balance-of-payment deficits. Prob-
lems with the volumes and prices of Vene-
zuelan oil seemed to be getting worse in
first half of 1978; and if these tendencies
result in a serious accumulation crisis -
with insufficient production of surplus
value to reproduce the system - this may
ultimately have political repercussions as
well: a change in forms of control from
social to physical, or the introduction of a
fascist or semi-fascist regime. This pattern
is too well known in Latin America to be
excluded as a possibility. However, the
breakdown of rule through bourgeois-demo-
cratic institutions does not seem very likely
in Venezuela at the moment, precisely be-
cause of the strength of the populist pact.
In concluding this article, let us point to
the similarity of the conclusions drawn by
Norman Girvan (1976) in his study of eco-
nomic nationalism in the bauxite sector,
especially in the Caribbean:
76 Vegard Bye
In effect, we are witnessing the development of
rentier states attached to the international alu-
minium industry and of 'appendage economies'
based on these rentier states... The evidence so
far is that the governments have been attacking
not so much the system of corporate imperialism
in the world aluminium industry as their own
place within that system. What may in fact be
taking place is ... the formation of a new alliance
between the corporate managers of the trans-
national aluminium companies and the buro-polit-
ical managers of the Caribbean bauxite-producing
states. (pp. 154-155).
Girvan's conclusion may also be made
our own: that the real content of national-
ization is frequently a model of dependent
growth, and its consequence a locking of the
peripheral social formation into even deeper
dependence on external markets. In the
case of Venezuela, there seem no traces
whatsoever of any effort to avoid such a
development.
NOTES
1. That peripheral social formations for cen-
turies have been incorporated into the world
capitalist system on the distribution level does not
mean that capitalist relations of production have
occurred there or even less been dominant all the
time, as Frank (1966, p. 7) erroneously claims.
For a good critique of this view, see dos Santos
(1970, pp. 139-50).
2. Normally, not only fundamental material
needs should be included in a definition of devel-
opment, but also a dimension of identity (lack of
alienation) or self-realization (see Galtung, 1975).
3. This change of strategy was confirmed by a
high-level spokesman of Fedecdmaras (the em-
ployers' association), whom I interviewed in
Caracas, in May 1976.
4. The list of indicators is not meant to be
complete. It can rather be understood as an at-
tempted systematization of available information.
Cultural, political, and military dominance/depen-
dence are excluded, because what is discussed here
are principally the economic aspects. The class
structure, also a part of the general structure of
dominance, will be discussed in next section. It is
obvious that several of these indicators are inter-
related and that one of them may be an important
cause of the other, but such factors will not be
discussed here.
5. According to some sources, the US share of
the export is considerably higher. LAER, vol.V
(1977), no. 5, suggests that the share is as high
as 70 %, whereas the same journal in its Special
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Report on Venezuela (January 1978) says it is
49 % excluding the throughput from Caribbean
refineries. The primary source for this information
is not given.
6. Oil production in Venezuela reached a peak
in 1970 with an average volume of 3.7 million
barrels a day. The volume produced in 1974 was
3.0 and in 1975, 2.3 million barrels a day.
7. Only two other oil countries, Libya and
Iraq, were more dependent on one export prod-
uct, with 100 % and 96 % respectively (Hveem,
1977, appendix B).
8. This figure is based on information about the
iron export in Financial Times Survey, 'Mining
Potential', 17. 11. 75.
9. One US dollar is about 4.3 bolivares. These
figures also include profits and investments for the
state company (CVP) and a small private Vene-
zuelan company, but their influence on the total
can for practical reasons be ignored.
10. Such figures are, of course, difficult to
determine. The figures quoted are based on the
price the concessionaries officially claimed for
sales to their mother companies. With respect to
the years 1974 and 1975, these prices were conside-
rably lower than those set by the state. Basing it-
self on the state-fixed prices, the Banco Central de
Venezuela claims that total profits for all com-
panies in 1974 was 18,501 million bolfvares, which
gives a totally different picture than the figure
given in Table 1 of my original study for the
same year (2,286 million bolivares). (Banco Cen-
tral de Venezuela, 1975). According to the BCV
figure, the transfer of surplus value in 1974 alone
amounted to almost US $ 3,850 million.
11. For a more accurate definition of this con-
cept, see Samir Amin, 1974.
12. This calculation is based on information
from the following sources: MMH, 1966, p. 173;
1972, p. 169; 1975, p. 143; Tugwell 1975, app.
table D; Rodriguez Trujillo, 1976, page 15 table 3.
13. Some authors, like Andre Gunder Frank
(1965) also include the direct transfer of surplus
value in this concept.
14. In this period, the Communist parties played
a very anti-militant role all over Latin America,
in order to fulfil Stalin's order of reduced con-
frontation with the ruling regimes. The Cuban
party took part in the first Batista government,
and in Nicaragua the party supported Somoza.
15. Of course, it is not unproblematic to link
this concept to Third World workers, as long as
Lenin used the concept to describe the fractions
of the working class and labour movement in
colonial countries that went into an alliance with
capitalists in their own countries in the exploita-
tion of the colonies. The important question of
applying this concept to the relatively well-off
fractions of the Third World industrial working
class has far too long been neglected. But as

Hobsbawm (1973, pp. 125) points out, the source
of the phenomenon is the superprofits of monop-
oly which allow the capitalists 'to devote a part
(and not a small one at that!) to bribe their own
workers, to create something like an alliance be-
tween the workers of a given nation and their
capitalists against other countries'. (Quoted from
Lenin's article 'Imperialism and the Split in
Socialism'). Most of this description is valid for
the case studied here, except for the constitution
of the alliance. That an alliance between monop-
olies and the 'labour aristocracy' is being cre-
ated, is certainly true, and will be discussed later.
It is also important to emphasize that a labour
aristocracy cannot be defined only on the basis
of economic criteria. As Poulantzas (1973) cor-
rectly points out, ideological criteria should also
be taken into consideration, as has been stated
here.
16. This decree established a presidential com-
mission that should study how nationalization
could be carried out.
17. The intention has been gradually to merge
these 14 operation companies into 5 or 6 units.
So far (March 1978), all the 14 units are still in
operation, but it was recently reported that
Llanoven, CVP, Palmaven, and Roqueven are
planned to be merged this year (Latin American
Special Report on Venezuela, supplement to
LAER, January 1978).
8. The existence of the high-level commission
and the negotiations was admitted by the AD rep-
resentative in the presidential commission, Mr.
Armas, in the Chamber of Deputies 12. 6. 75, fol-
lowing a series of accusations about this from the
opposition parties. The constitution of the high-
level commission was given in Resumen, 21. 9. 75.
19. This was also confirmed by an advisor to
the 'high-level commission' whom I interviewed
in Caracas, Spring 1976.
20. The national oil incomes before the na-
tionalization were made up of taxes and royalties.
After the nationalization, it comprises government
incomes plus the profits of the operation com-
panies, of which 10 % is transferred to PDV. -
According to the Latin America Special Report
(supplement to LAER, January 1978), the per
barrel take for the nation rose from Bs. 33 in
1975 to Bs. 38.22 in 1976 and Bs. 41.75 in the
first half of 1977.
21. One should have expected the increase in
'national oil income' to have been much larger
than it actually turned out to be, especially if the
National Bank's calculation of total profits to the
concessionaries the last year before nationalization
(18,501 million Bs.) is correct. This calculation
was based on the state-fixed prices. The main
reason for this small increase may have been, as
Proceso Politico, op. cit., points out, that the state
according to the sales contracts was forced to sell
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Nationalization of Oil in Venezuela 77
the oil at the same prices as the concessionaries
earlier claimed they had received from their
mother companies, i. e. abandoning the prices
fixed by the state. In the same category of pos-
sible explanations come the charges from the
political party MAS, that Shell according to a
contract between that company and PDV had
got 49 cents a barrel in discounts on sales (LAER,
vol. V, 1977 No. 25).
22. All business-oriented analysts seem to agree
on this - see e. g. the earlier referred Special
Report on Venezuela published by LAER.
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(former Latin American weekly news-
magazine)
Petroleum Intelligence Weckly (PIW)
Proceso Politico (political journal edited in
Caracas)
Resumen (weekly magazine edited in Caracas)

INTERNATIONAI PROBLEMS
From the contents of issue No. 1, 1979

Peace Research Reassessed by M. Mushkat; Development Theories Re-

examined by Y. Reuveny; Motivations specifiques de la Politique d'lsrael
par M. Vardi; The US in the ME Talks by Ch. H. Lu; La Participation
d'lsrael Aux Activites Regionales de l'UNESCO par J. Beer-Gabel; On
O. Schachter's 'Sharing the World Resources' by M. Maneli; On Greig's
'The Communist Challenge to Africa' by B. Neuberger; On A. S. Whiting's
and R. F. Dernberger's 'China's Future Policy' by A. Shay.

International Problems is the journal of The Israeli Institute for the Study
of International Affairs (IISIA). It publishes articles in English, French and
Hebrew. Annual subscription is $25; Address: IISIA, P.O.B. 17027, Tel-
Aviv 61170, ISRAEL.

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