January 10, 2007

Telephones for the Classes – Socialism for the Masses

Need to phone Venezuela? Forget about it if Hugo Gets His Way

(A magazine article based on this post, "Chavez's New Statism" may be found at FrontPage Magazine. Click here -- DP.) 

By David Paulin

President Hugo Chavez has announced his intention to pursue an authoritarian socialist model for Venezuela, and to nationalize key companies. Predictably, the nation’s stock market and currency has gone into a nasty tail spin.

"We're heading toward socialism, and nothing and no one can prevent it,” Chavez declared on Monday, in a national television address. Today he will be sworn into a third term that runs until 2013.

Chavez's embrace of socialism should surprise nobody who has been paying attention to what he's been saying. He was announcing his radical intentions, loud and clear, as early as 1999 when he took office. Specifically, Chavez vowed on Monday to nationalize Venezuela’s telecommunications company, unspecified electrical firms, and to reduce the Central Bank’s autonomy. Among other things, he also called for additional powers for himself so that he could rule by decree.
In respect to the nationalizations, the biggest prize would be Venezuela’s publicly traded telecommunications company, Compania Anonima Nacional Telefones De Venezuela (known by the Spanish acronym CANTV, pronounced "Can-Tee-V”). “Let it be nationalized," he said. "The nation should recover its property of strategic sectors.”

Before 1991, to be sure, CANTV was a state-owned and managed phone company. It also was an international basket case: People calling across town had trouble getting a dial tone – much less a connection. Calling other cities was virtually impossible.

I lived in Caracas during these years, working as a Caracas-based foreign correspondent for several American daily newspapers. The story of what CANTV was – and what it became in the hands of can-do American managers – is a remarkable one. It’s also testimony to the power of markets to transform an economy – in terms of providing investment, transparency, and accountability.

Inept Management

Poorly managed as a state-owned company, CANTV was rife with do-nothing political patronage jobs and corrupt unions that got what they wanted. In short, it was what you’d expect in a nation with a statist economy that, according to corruption-watchdog Transparency International, was among the world’s most corrupt.
Venezuela had a population of about 20 million people at the time – yet only 1.6 million of them had telephones. It wasn’t for lack of money. Rather, the money-losing state phone company took years to hook up phone lines – unless you had political connections, bribed the right officials or purchased a stolen line. The state phone company, according to some accounts, took out advertisements asking its customers not to use the phones too much.

Like many Third World countries, Venezuela realized it needed a modern telecommunications system to develop its oil-producing economy. After a highly politicized congressional debate, it privatized CANTV. A GTE Corp.-led consortium won a bidding process and acquired 40 percent of CANTV for $1.9 billion. The government retained 49 percent, and workers kept the remaining 11 percent. (Dallas-based GTE Corp. merged in March 2000 with Bell Atlantic to form Verizon Communications.)

Consider some of what the privatized CANTV accomplished: From 1992 to 1994, it invested more than $1.1 billion to upgrade and expand Venezuela's phone system – more than was spent during the 20 years preceding privatization.

Led by American managers, CANTV's 22,000 employees installed more than 863,000 phone lines by 1994 – 4 1/2 times as many as were installed during the two years preceding privatization.

More than 460,000 customers were added, three times more than CANTV connected during the two years before privatization.

Bottom line: By 1994, callers almost always got a dial tone. And they usually got a connection.

“The telecommunications system here was very poorly designed and maintained, with 40-to 50-year-old technology,” CANTV's 40-year-old president Bruce Haddad, a 19-year GTE veteran, told me during an interview in July, 1994.

Haddad had his share of problems. He was spoofed on a Venezuela comedy program, had annual reports tossed at him during an annual meeting, and was called a “gringo” and “foreigner.”

At one point, an arrest warrant that seemed politically motivated was issued against him. He was charged with complicity in a natural gas pipeline explosion, caused by a CANTV sub-contractor, which incinerated more than 50 motorists on a major highway. After lying low for a while, Haddad eventually turned himself in and was exonerated.

He and fellow GTE Corp. managers kept the company moving ahead through two bloody coup attempts (one led by Lt. Col. Hugo Chavez); draconian currency exchange controls, a 100 percent currency devaluation, 70 percent interest rates, and annual inflation of up to 100 percent.
Haddad and fellow GTE Corp. senior executive Douglas Mullen shocked Venezuelan workers by mingling freely with them at functions designed to build esprit de corps – something most status-conscious Venezuelan managers would never do.

It will be interesting to see how CANTV fares once it’s controlled again by Venezuelan managers: state employees of a government that, by all accounts, is involved in record levels of corruption.

Haddad, incidentally, never made it back to the states to settle down with his wife, Dorothy. They died when their corporate jet smashed into the side of a volcano near Guatemala City, Guatemala at 3:30 a.m. on Feb. 19, 1997. They were racing the clock to get to Dallas, where the couple was supposed to catch an airliner to China. Haddad was going there as part of his new position, senior vice president of international operations. Both were 43 years old. They had been high school sweethearts.

Author’s note: This was derived in part from articles I wrote for The Dallas Morning News while based in Caracas. For additional analysis, visit The American Thinker and The Devil's Excrement.

Also see these earlier posts:


Chris Leiblie said...

More Histrionics from the right wing. The Venezuelan people have voted and Chavez won ! This is what the people want ! they are tired of being ripped off by the west and the bullies of North America. They have the right to SELF DETERMINATION. Leave them alone. If the USA invades, it will turn out to be another bay of pigs....alll because of a case of wounded national pride.

Anonymous said...

I quite agree, Chris. As Mencken aptly said, democracy is the idea that the common man knows what he wants and deserves to get it good and hard. Let the foolish Venezuelans return to the days of shoddy/non-existent phone service (I can vouch for David's characterization of the state-run system...I spent many months in Valencia during the 1980s), corrupt and incompetent bureaucracy and totalitarian-minded thugs running their government. The world will have yet another exhibit in the moral, economic and political bankruptcy of socio-communism and you parlor pinks will have another Great Helmsman to fawn over as another nation is thrown into privation.

David Paulin said...


I have no idea what you are referring to when you say that Venezuela has been "ripped off by the West and the bullies of North America." Venezuela and the U.S. are major trading partners. American oil companies played crucial roles in developing Venezuela's oil industry -- the main source of income for Venezuela. The suggestion that the U.S. has ever considered invading Venezuela is the product of Hugo Chavez's fantasies and demagoguery. I can't imagine how Chavez has wounded U.S. "pride."

Finally, there's your comment: "The Venezuelan people have voted and Chavez won! This is what the people want!" First, whether Venezuela's elections were fair is debatable. Despite what Jimmy Carter may say, Chavez's government was not completely open and transparent in respect to the last election and the access that independent observers had in observing the election. There has been voter intimidation on the part of Chavez officials. Chavez illegally used state resources as part of his campaign. The list goes on and on....

A democracy is about more than free elections. Or, to put it another way, there are democracies -- and their are illiberal democracies. That later is what exist in Venezuela today. Sure, Chavez may win problematic elections, usually by slim margins, but from then on there are few of the traits in Venezuela that one expects in a liberal democracy. There is no respect for minority opinions or interests; no willingness to compromise when making policies; no desire to include all citizens within a political process. That fact that there are hundreds of thousands of Venezuelans regularly taking to the streets -- with few "oligarchs" among them -- is one of many examples of the fact that all is not well in Venezuela.

David Paulin said...


It's no surprise to hear that during the 1980s Venezuela had a "corrupt and incompetent bureaucracy" and lots of "totalitarian-minded thugs" running the government. Come to think of them, you have plenty of them in America, too. Why? Because that's human nature: "Power corrupts, and absolute power corrupts absolutely." Fortunately, Americans are fortunate to have lots of checks and balances that puts leashes on bullies and ensures comfortable levels of accountability. The nation's civic-engagement values also keep thugs and petty officials in check. I know I didn't need to tell you any of this. But I thought I'd add a few things of my own, as it was a pleasure to get a reader's comment that, for a chance, actually agreed with me. Thanks for writing.

ConsDemo said...

Excellent post. State owned industries are usually white elephants. An envious populace can sometimes be convinced to support them regardless of their drawbacks, but make no mistake about it, this isn't about improving telecommunications in Venezuela, this is about more power for Hugo.

I agree he was democratically elected and the illusion of the bonanza petrolera may continue for as long as oil prices stay high. Once that ends, the whole house will come crashing down, since Socialism for the 21st century is pretty much like the failed 20th century version.

David Paulin said...

Yes, I agree completely, and thanks for those incisive comments.

Incidentally, Venezuela’s state-oil company, PDVSA, was one state industry that did in fact have a good reputation – until Chavez took power in 1999. The reason is that a culture of “meritocracy” existed in PDVSA. That ended when Chavez quickly started packing the company with political cronies. The first example of this came early into his term, when he appointed a former mid-level manager to PDVSA’s presidency.

The company’s performance is now a mystery due to a lack of transparency under Chavez’s government. All indications are that it’s performing badly.

When oil prices fall, Venezuela is indeed going to be in dire straights due to epic mismanagement and corruption -- all of which is being masked by soaring oil prices. The resulting instability may pose problems for the region.

Incidentally, an excellent article may be found at Foreign Policy’s online site, “Why Chavez Wins,” by Francisco Rodriguez. It looks at what Chavez has done for Venezuela’s poor, which is not much. I was alerted to this via one of the excellent Venezuela blogs on my blogroll -- Fausta's blog, Caracas Chronicles, and Venezuela News And Views.

David Paulin said...

In respect to the excellent Caracas blogs, I left out The Devil's Excrement. I just got this blogroll up a few weeks ago, and I'm still adding to the list, incidentally.

Winslow Leach said...
This comment has been removed by a blog administrator.
David Paulin said...
This comment has been removed by the author.
David Paulin said...

On Jan. 14, 2007, I determined that an Internet troll has posted numerous negative comments on this site -- using phony names or posting anonymously. The troll, whom I identified, is banned from posting on this website. Among the names he used were Chris Leiblie and Winslow Leach. My deleted reader's post was a message from me that "outed" the troll; he subsequently confessed to his trolling activities in a personal e-mail to me. Although I deleted his Winslow Leach comment, I subsequently decided to leave his other comments up. At ModernConservative, incidentally, he posted as "Albert Deans" and claimed to be a retired FBI agent to give extra weight to his criticism of an article I published at that website. It concerned jihad and the Caribbean.

David Paulin said...

I am happy to be able to publicly identify the troll as Peter Johnson. In a private e-mail to me, Johnson told me that he is big fan of Hugo Chavez and Fidel Castro because "they stick up for the little guy." Johnson, incidentally, is a a real estate agent in Chicago and a corporate pilot for Ohio-based Flight Options.