How Rational are Capitalists in the Developing World?

How Rational are Capitalists in the Developing World?
Venezuelan oil: Now it belongs to everyone.

By Thomas Chiasson-LeBel

A questionable fundamental assumption underpins a great deal of the literature in International Development studies. It suggests that given the proper incentives, a “national bourgeoisie” will adequately reinvest its profits and provoke a virtuous cycle of reinvestment and growth. In other words, that capitalists, provided with the appropriate conditions, will always make the kinds of “rational” decisions that will sustain economic growth.

According to market apologists, minimal state intervention provides the best chances for reinvestment cycles to happen. From a different perspective, advocates of state-led development (from an institutionalist and/or heterodox perspective) are generally subtler: given the specificity of market rationality, state intervention is critical to channel investors towards a sustained path of economic growth.

In both cases, the underlying assumption is that given the appropriate setting, when investment openings exist, some investors will seize them and profit, compelling their competitors to follow suit in order not to be “eaten” by the quicker ones. This understanding supposes that those with capital to invest are ready to take risks. However, what if these explanations only consider a narrow form of “rationality”? What if capitalists do not reinvest? What if their economic and political decisions sometimes respond to another understanding of reality, even one damaging to their own economic interests?

“There is nothing more cowardly than money” is a common saying around business chambers in Venezuela. It means that businesses not only need good opportunities to invest, but extremely safe ones. Here, an institutionalist argument would suggest that appropriate policies could hedge the risks and make investors feel safer. But there is a conundrum: in the current ideological context, investors are unlikely to trust such policies or may distrust the leaders who implement them. Their perception may interpret such policies as inappropriate state intrusions into the economy, making the conditions unsafe for investment.

Successes and failures of development policies are not just dependent on an abstract market rationality. Investor perceptions regarding such policies, and regarding those in charge of implementing them, are critical. Such perceptions change over time, and need to be fully considered in order to understand the success and failure of development programs.

By comparing development policies applied in Venezuela over different time periods, we can see the importance of the political positions adopted by organizations uniting investors (chambers of commerce, industry…). In this oil-exporting country, investors have historically been very united. It is one of those rare places where a national federation unites capitalists from all regions and sectors (industry, commerce, large-scale agriculture) in a single federation: Fedecámaras. When this federation supported state-led development policies, these policies tended to produce the hoped-for results; when Fedecámaras did not support them, the policies tended to fail.

In the 1970s, Fedecámaras supported state-led development. They even supported the nationalization of oil and its use for redistributive and development purposes. Over the course of that decade, the private sector invested $2.2 for every dollar the state invested, and the economy experienced its most important economic growth. When one removes the oil sector, the ratio of private–public investment was almost 3 to 1 (see table).


Gross Fixed Investment Rates: Venezuela, 19601998
Annual average of all investments
(as % of GDP)
Annual average of non-oil investments
(as % of non-oil GDP)
Total Public Private Total Public Private
1960–70 24.2 8.4 15.8 26.1 9.1 17.0
1970–80 34.4 10.8 23.6 36.8 9.6 27.2
1980–90 21.3 10.6 10.7 22.5 8.7 13.8
1990–98* 15.8 9.9 6.9 13.7 5.6 8.1
1998–02 15.1 6.6 8.5 n/a n/a n/a

*Non-oil investment data for the period 19901995 only.
Source: Jonathan Di John, From Windfall to Curse? Oil and Industrialization in Venezuela, 1920 to the Present, University Park, PA: Pennsylvania State Press, 2009, p. 19.


Starting in 1980, the position of Fedecámaras changed, complaining that oil revenues gave too much power to the state. In 1989, when the government of Carlos Andrés Pérez signed a letter of intent with the IMF that corresponded, to a great extent, to the demands of Fedecámaras, which echoed the Washington Consensus, Fedecámaras nevertheless rejected its implementation. Fedecámaras deemed the president untrustworthy since he had presided over the nationalization of oil in the 1970s.

While Fedecámaras had initially agreed to state control over the oil sector, they came to reject it because the growing economic power of the state and its protection of workers’ rights undermined their own power. Their lack of support for the adjustment plan made its implementation more difficult. Fedecámaras would eventually recognize that the adjustment plan did support their interests, but only after the political situation to which they had contributed had led to the impeachment of the president in 1993.

The foreign investment that these IMF-inspired policies were supposed to attract only began in 1994, when the relationship between the government and Fedecámaras improved. This complex episode illustrates that even a liberalization program needs the support of the entrepreneurial class to work.

But the most salient example of the impact of political decisions made by Fedecámaras remains its support of the coup in April 2002 and the oil blockade in 2002–2003. Although President Chávez’s development model was far from being socialist at the time, many other policies — notably regarding private property of landed estates — notably regarding private property of the land — displeased the very united class of investors represented by Fedecámaras. Government efforts to promote private investment provided some results until Fedecámaras backed protests and a coup attempt that caused an economic slump in 2002 and 2003, affecting several businesses that supported the uprising.

The case of Venezuela shows that contemporary state-led development is extremely complex. Given the ideological proclivities of investors and the realities of globalization, businesses are unlikely to accept state guidance regarding investment, even when it could be, in the long run, the “rational” thing to do.

Thomas Chiasson-LeBel is a SSHRC postdoctoral fellow at the University of California Santa Cruz. His research focuses on class struggle in the extractive sector in Venezuela, Ecuador, and Bolivia. He spoke at CIPS on 22 November 2017, and you can read more of his work here.


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