Protectionism: Boon to Dictatorship

It is ironic that Americans’ renewed optimism about their prosperity comes at a time when the economies of our Third World allies are in disarray and their futures increasingly bleak. Actually, the concurrence of good fortune and bad is not entirely coincidental. Expansion of the developed economies has been made possible by the relentless downward trend in the prices of oil and other Third World raw-material exports.

Acute stagnation and recession are sorely testing both recently established democracies like Argentina and longstanding ones like Venezuela, which in scope of effect has been the Latin American country most pained by falling export prices.

In the 1970s, as oil prices skyrocketed from $2 per barrel to $34, Venezuela adopted a course of “sowing the oil”--injecting large sums into economic diversification. The centerpiece of this ambitious program was the Orinoco Steel Works, the state-run steel industry. Ten years later, not only has the project had its budget slashed, but also accusations of dumping lodged by U.S. steel companies in Washington have forced it to “voluntarily” restrict exports to its most important market.

In the 1970s Venezuela viewed the Organization of Petroleum Exporting Countries as the vehicle for overcoming underdevelopment in the short-term future. When oil prices nose-dived in the 1980s, these hopes were dashed, and political and business leaders began to question the organization’s efficacy. Fedecamaras, Venezuela’s equivalent of our Chamber of Commerce, at its last national convention called for a “new strategy” that would “alter our presence within OPEC, without signifying actually dropping out.”

Still, most Venezuelans cling to OPEC as the only real hope for raising sufficient capital to promote development and stabilize the nation’s share of the world market. The alternative, reaching an agreement with the United States in order to achieve these same objectives, is generally considered unlikely.

For decades Venezuelans have argued that the United States should give their oil preferential treatment in recognition of their nation’s reliability, proximity and democratic system--all of which contrast with the Middle Eastern producers. Washington has periodically recognized the validity of this claim and has pledged to take it into consideration, but the promises have never materialized. In fact, they have been upended. Venezuela was stunned and infuriated last month when, contrary to insiders’ predictions of a veto, President Reagan signed the toxic-waste cleanup bill that included a tax on imported oil. Venezuela is already reeling from a $100-billion foreign debt on top of a 40% decline in oil income--virtually its only source of foreign exchange.

Next month OPEC will consider a return to a uniform fixed price--$18 per barrel, about $3 above October’s average. (In July, Venezuela registered the lowest of published members’ prices: $7.55.)

Should OPEC fail to recover its strength, Venezuela will be forced to fall back on purely defensive measures. This is the approach being pursued by other Latin American nations whose main attention is focused on budgetary cuts to raise enough money to make good on their foreign debts. Naturally such a rear-guard action does not engender widespread support, enthusiasm and hope, and thus serves only to undermine democratic regimes.

Venezuelans are anything but apologetic about their nation’s membership in OPEC. Former President Carlos Andres Perez told me in an interview: “OPEC is no different from the oligopolies that control the economy of the developed nations and set prices on commodities ranging from steel to pocketbooks. That OPEC’s agreements are formal rather than tacit, as are those of the oligopolies, does not make them any the more binding or effective.”

If ever the unrelenting rhetoric against OPEC was unjustified, it is now that the prices of oil have plunged to half their previous levels. OPEC should be viewed not as a conspiracy to bilk the countries of the developed world but as part of a strategy designed by oil-producing countries to deal with pressing economic problems--the same ones that are faced by all developing nations.

The faltering behavior of oil prices in recent years is just the most extreme case of other commodities that represent the lifeline of Third World economies. Those in the United States who advocate restriction of imports and reprisals against OPEC would do well to keep in mind that, while protectionism is not likely to destabilize our European allies, it may make the difference between democracy and dictatorship in many Third World nations.