Venezuela's oil billions don't reach all its people

At 30-second intervals, single-prop aircraft appear out of the late-afternoon sky and drift into the green valley surrounding Caracas. The planes are returning rich sunbathers from the Caribbean beaches on the other side of the valley.It is only 45-minute drive by car, but Venezuela's nouveau riche -- rich on oil -- like to go first class.

Thanks to oil, the government is able to spend first class, too.

Ever since Venezuela struck oil in the early part of the 20th century, it has had the financial resources to do things most other Latin American countries only dream about. This is especially the case since the 1973 Arab oil embargo and the subsequent rise in world oil prices. Venezuela's oil revenues tripled, from $3 billion to $15 billion, between 1972 and 1980.

The government sank hundreds of millions of dollars into coal mining and hydroelectricity in those years. Caracas, the nation's capital, got a gleaming new metro. The city is the symbol of Venezuelan prosperity -- a Hollywood, Las Vegas, and New York all rolled into one.

But the result of all this oil wealth is in many ways a Latin American tragedy. Despite its new prosperity, its careful and largely successful nationalization of the foreign-owned petroleum industry in 1976 and 1977, and its democratic political system, Venezuela has largely failed to achieve what center-left third-world nations aspire to -- growth with equity. It is a perfect example of the difference between economic growth and economic development.

The nation's gross national product rose 6 percent a year in the 1970s and exports soared. Venezuelans now have the highest per capita income in South America -- $3,000 in 1980 -- compared with an average of $1,120 in other countries on the continent. Yet a massive study of the nation's economy, commissioned by the government, shows that 30 percent of Venezuelans are undernourished, uneducated, and physically weak or mentally retarded. Venezuelans, the report says, face a poverty syndrome of unsanitary housing, shoddy health services, and deficient public schools. Millions live in shantytowns around Caracas, 10 or more people to one living-sleeping-eating room.

Many of the problems, as well as the progress, of Venezuela's economy can be traced to the impact of oil revenues on the nation's economic, political, and social structure.

The government is regularly criticized for substituting spending for planning and effective administration of development programs. During the 1973-79 administration of President Carlos Andres Perez, says one analyst, "The government's approach to solving problems was to throw money at them -- not to find real solutions, but to paper them over like leaks in a ceiling."

The government financed construction of the Corpo-Zulia coal and steel site, a huge hydroelectric dam at Guri, the Caracas subway, and numerous other capital-intensive projects. The prospects for jobs and high wages resulted in rapid, massive migration of the rural labor forces to the project areas.

As a result, agriculture was deeply affected by the population shift. Coffee , cocoa, and sugar production stagnated for lack of laborers. At the same time, demand for food products jumped, in part due to new consumer buying power, agricultural economists say. This year Venezuela is expected to import a record

An associated problem is the presence of an estimated 500,000 illegal aliens. Venezuela never developed a controlled immigration policy, so during the 1970s the nation was a mecca for unemployed, unskilled workers from the Andean countries, especially Colombia, and from Caribbean islands. Venezuela needed workers in the mid-'70s boom-construction period; but recently tensions have been rising between native Venezuelans and immigrants.

The attempts of the current President, Luis Herrera Campins, to cool down the nation's overheated economy are producing even more friction. There are fewer jobs, and competition for them is keen. Many Venezuelans blame the "illegals" for rising crime and violence in the cities.

A lack of competitiveness in the manufacturing sector has been another result of the oil revenues. Although one reason for this condition is government attempts to insulate the country from the inflationary impact of oil prices, another major reason, observers say, is politicians' fear that inflation is the biggest threat to their popularity.

High inflation could have been expected from oil revenues, government spending, and private spending, but inflation was more or less kept to 10 percent or less per year in the boom era.

One quite successful policy for containing inflation was the funneling of oil revenues into the Venezuelan Investment Fund, a regional development bank that makes long-term development loans at low-interest rates. This kept a considerable portion of the oil revenues out of domestic circulation, and has been applauded economically and politically.

Another inflation-fighting policy, practiced between 1974 and 1979, was price controls and heavy subsidization of industry. In order to encourage businessmen to continue producing despite rising labor costs and fixed prices, the government routinely financed purchases of raw materials. By 1979, however, these measures had backfired. The manufacturing sector was caught up in a viscious cycle of ever-greater subsidies, higher labor costs, and less efficient production.

President Herrera Campins has taken steps he hopes will make the economy more competitive and productive. Government subsidies to industry have been slashed; prices are being allowed to rise to their natural levels. Predictably, the 1979 inflation figure (20 percent) was way up over previous years, and many long-inefficient, uncompetitive businesses now face the prospect of going bankrupt. Still, many Venezuelan businessmen believe this is a necessary process that will benefit the country in the long run.

The most tragic impact of oil on Venezuelan life, however, is its effect of the poor. They expected to be enriched by it, but have received practically nothing. Politicians who suddenly have the resources to do something for them seem not to have gotten around to this task. Instead, modern Venezuelan politics revolves around officials trading allegations of corruption, bribery, and financial mismanagement. Local observers complain there is little substantive discussion of important economic and social issues.

National leaders expect that the 1980s will bring new, but equally difficult, problems -- many of which will arise from the nation's increasing importance as a world oil supplier. How successfully these will be met is unknown. A prominent US businessman in Caracas comments: "Venezuela is going down the tubes , and unless things change, there could be a right-wing authoritarian or military government here by the end of the decade."