Econ267s
From Dickinson College Wiki
- Formation of a Petroleum Economy
- Before the installation of the petroleum industry, Venezuelans lived by agriculture.
- Tachira liberals, dominant in the Andes Mountains, gained control of the central government in 1899. These liberals were a part of a fading middle class. Most of them were high school graduates that could not afford college; they had to settle for jobs with mediocore pay. They sensed that there middle class was being wiped out because they did not have governmental help with college. Tese liberals were led by Cipuano Castro and took over Venezuela by 1899. This Andean rule lasted from 1899-1945.
- Juan Vincent Gomez (1908-1935) presided over the transformation of Venezuela from an agricultural economy to a petroleum republic.
- Gomez took control of the government during a coup in 1908 that threw out Cipuano Castro.
- Gomez appointed economic ministers that had the same view as his. During the thirties, the government revamped the currency so it would favor capitial goods (petroleum) and so it would help eliminate the old agricultural economy. Gome also reestablished diplomatic relations with different world powers that Castro offended, including the United States.
- The Caribbean Petroleum Company, or "SHELL", discorvered oil at Mene Grande on the east shore of the Maracaibo Lake in 1914. It began comercial production of oil that same year.
- In 1922, Rockefeller's Standard Oil Company also found oil on the east shore and formed an oil field that eventually became the third largest oil field in the WORLD!
- These oil discoveries combined with the new governmental policies implimented by Gomez led to a great BOOM in the Venezuelean economy!
How Did Oil Create An Economic BOOM?
- Simple Growth:(1920-1945)
- The oil companies only employed a small amount of the Venezuelan work-force, however, the industry was reaping great wealth. Concessions from foreign countries created great freedom for the provate companies. They could create their owm terms of aggreement and would create private roads for the sole purpose of their own benfit.
- These private oil companies did influence the economy. Complementary industries and services were created to help with the ever growing oil production. One such industry was banking. Between 1918 and 1936, total bank deposits increased from 17 million to 127 million.
- In 1936 the government embarked on its now-famous policy of "sembrar el petróleo", or "sowing the oil." This policy used oil revenues to stimulate agriculture, and later, industry growth.
- In 1943, The Hydrocarbons Laws were initiated in Venezuela. This law created state participation in the oil industry. Companies were now forced to pay 16.66% of royalties on all earnings to the state. The state in turn could use this money to stimulate its own economy. By 1948 the taxes could not fall under fifty percent of all oil companys' earnings.
- Growth Since 1945
- With the arrival of democracy in 1958, Venezuela's new leaders concentrated on the oil industry as the main source of financing for their reformist economic and social policies.
- During the late 50s and early 60s, taxation was the major policy used to reap the oil industry's benefits. Urbanization also crated new internal markets that allowed oil revenues the ability to fuel new product growth.
- December 1974, a national commission created by President Pérez delivered a proposal for nationalization. This proposal formed the core of the 1975 law that nationalized the oil industry. The most controversial element of the new law was Article 5, which gave the government the authority to contract out to multinational firms for various technical services and marketing. Despite the controversy, Article 5 provided technical expertise that proved crucial to the industry's smooth transition to state control beginning on January 1, 1976. The country created the "PdVSA" which is Venezuela's national oil company. It has become the third largest oil company in the world! PdVSA
- Exports and Imports
- The discovery of the oil sites in 1914 and 1914 had the gratest effect on exports and imports. By 1926, 4 years after the discovery by Standard Oil Company, oil was the principal export of Venezuela. From 1926 to 1930, it accounted for 72% of total exports. By 1940 it was over 90% of all exports.
