Does Hugo Chavez help the poor?

The usual defense of Chavez, to the extent that there is one, is that he may be wrecking his country's economy, but at least he's helping the poor. Foreign Affairs has an essay by Francisco Rodriguez, the chief economist of the Venezuelan National Assembly from 2000 to 2004, saying that no, Chavez isn't doing that, either:

Views differ on how desirable the consequences of many of these reforms are, but a broad consensus appears to have emerged around the idea that they have at least brought about a significant redistribution of the country's wealth to its poor majority. The claim that Chávez has brought tangible benefits to the Venezuelan poor has indeed by now become commonplace, even among his critics. In a letter addressed to President George W. Bush on the eve of the 2006 Venezuelan presidential elections, Jesse Jackson, Cornel West, Dolores Huerta, and Tom Hayden wrote, "Since 1999, the citizens of Venezuela have repeatedly voted for a government that -- unlike others in the past -- would share their country's oil wealth with millions of poor Venezuelans." The Nobel laureate economist Joseph Stiglitz has noted, "Venezuelan President Hugo Chávez seems to have succeeded in bringing education and health services to the barrios of Caracas, which previously had seen little of the benefits of that country's rich endowment of oil." Even The Economist has written that "Chávez's brand of revolution has delivered some social gains."

One would expect such a consensus to be backed up by an impressive array of evidence. But in fact, there is remarkably little data supporting the claim that the Chávez administration has acted any differently from previous Venezuelan governments -- or, for that matter, from those of other developing and Latin American nations -- in redistributing the gains from economic growth to the poor. One oft-cited statistic is the decline in poverty from a peak of 54 percent at the height of the national strike in 2003 to 27.5 percent in the first half of 2007. Although this decline may appear impressive, it is also known that poverty reduction is strongly associated with economic growth and that Venezuela's per capita GDP grew by nearly 50 percent during the same time period -- thanks in great part to a tripling of oil prices. The real question is thus not whether poverty has fallen but whether the Chávez government has been particularly effective at converting this period of economic growth into poverty reduction. One way to evaluate this is by calculating the reduction in poverty for every percentage point increase in per capita income -- in economists' lingo, the income elasticity of poverty reduction. This calculation shows an average reduction of one percentage point in poverty for every percentage point in per capita GDP growth during this recovery, a ratio that compares unfavorably with those of many other developing countries, for which studies tend to put the figure at around two percentage points. Similarly, one would expect pro-poor growth to be accompanied by a marked decrease in income inequality. But according to the Venezuelan Central Bank, inequality has actually increased during the Chávez administration, with the Gini coefficient (a measure of economic inequality, with zero indicating perfect equality and one indicating perfect inequality) increasing from 0.44 to 0.48 between 2000 and 2005.

Poverty and inequality statistics, of course, tell only part of the story. There are many aspects of the well-being of the poor not captured by measures of money income, and this is where Chávez's supporters claim that the government has made the most progress -- through its misiones, which have concentrated on the direct provision of health, education, and other basic public services to poor communities. But again, official statistics show no signs of a substantial improvement in the well-being of ordinary Venezuelans, and in many cases there have been worrying deteriorations. The percentage of underweight babies, for example, increased from 8.4 percent to 9.1 percent between 1999 and 2006. During the same period, the percentage of households without access to running water rose from 7.2 percent to 9.4 percent, and the percentage of families living in dwellings with earthen ?oors multiplied almost threefold, from 2.5 percent to 6.8 percent. In Venezuela, one can see the misiones everywhere: in government posters lining the streets of Caracas, in the ubiquitous red shirts issued to program participants and worn by government supporters at Chávez rallies, in the bloated government budget allocations. The only place where one will be hard-pressed to find them is in the human development statistics.

Remarkably, given Chávez's rhetoric and reputation, official figures show no significant change in the priority given to social spending during his administration. The average share of the budget devoted to health, education, and housing under Chávez in his first eight years in office was 25.12 percent, essentially identical to the average share (25.08 percent) in the previous eight years. And it is lower today than it was in 1992, the last year in office of the "neoliberal" administration of Carlos Andrés Pérez -- the leader whom Chávez, then a lieutenant colonel in the Venezuelan army, tried to overthrow in a coup, purportedly on behalf of Venezuela's neglected poor majority.

This is actually a broad lesson about governments everywhere: we give them too much credit for economic growth (and economic decline). It's safe to say that Chavez has done absolutely nothing to produce the tripling in oil prices that are boosting his economy and reducing poverty; in fact, oil production has fallen dramatically on his watch, thanks to mismanagement of PDVSA, the state owned oil company, which has gone from "best in class" to subpar in a few short years.

I confess I was surprised by this; it's a commonplace among energy people that PDVSA is suffering in part because its investment funds have been transferred to the poor. Now I don't know where they've gone.