Does Juan Forero Believe the Venezuelan Government Can Manage Its Resources?

This morning on NPR, Juan Forero's report on Hugo Chavez's new policies includes this:

In a series of announcements in recent weeks, Chavez has promised to install a socialist state and redistribute Venezuela's oil-generated wealth.

It will be far from communism, which is what his critics claim he wants. But 21st-century socialism does mean nationalizing utilities. It means more state control of the oil sector. And the National Assembly is about to give the president the power to enact economic laws by decree for 18 months.

A shoe factory in Caracas' poor west end is an example of what Chavez wants. Here, 80 workers make one kind of shoe. It's black and nondescript. Thousands of pairs are exported to Cuba, Venezuela's closest ally.

This factory, run by state-organized cooperatives, is the new Venezuela. Gustavo Zuniga is among the "leaders." There is no manager.

"We went from being instruments of capitalism to being the owners of a company that produces goods for a community," Zuniga says. "We are conscious that this is the economy that can save the world."

In a highly polarized country, the changes are captivating to Paula Cadenas's cousin, Joanna Cadenas. She is a teacher at the state's Bolivarian University. She always dreamed of a government that would take care of its people.

Sitting in a noisy shopping mall, sipping a beer, she heralded the government's so-called missions: health, education and nutrition programs bankrolled by oil dollars.

Venezuela seems caught between two worlds. One is capitalist, where oil is king. But tugging the other way is Chavez's so-called Bolivarian Revolution.

It may sounds good, apart from the "nondescript" shoes that are apparently only a hit in Cuba. The generally positive tone reminds me of last month's report. But what about where the money comes from? Consider this:

In his recent inauguration speech, President Hugo Chavez also announced an intention to amend the constitution to bring the gas law into line with that of oil. The intention would seem to be that private foreign investors in companies operating in the gas sector should no longer be allowed majority ownership or control. Other announced changes appear likely to consolidate the state's control of other aspects of [the state oil company] PDVSA's business relationships. Energy Minister Rafael Ramirez has announced that PDVSA is considering developing its own oil services company, working with the Chinese government.

However, the strategy implies a series of risks:

--PDVSA was seriously weakened by the strike and subsequent mass firings in 2003. It now faces a huge increase in management workload.

--Given the government's ambitious domestic social agenda and its growing international commitments, Venezuela needs the oil price to stay as high as possible, to maximize government income.

--This further uncertainty over the future shape of the oil industry poses questions about investment. Current investors are unlikely to progress to new investments until the new "rules of the game" are clear. Without significant investment, the country will struggle to maintain its current level of crude production.

--Substituting NOCs for private foreign investment, and taking service provision in-house, risks a corresponding reduction in the quality and competitiveness of technology.

The government is exerting increasing control over the hydrocarbons sector and other "strategic" industries. The challenge is whether it can manage the associated risks to investment, management and efficiency.

Even if oil stays expensive, will the Venezuelan government be able to manage it well?