Process Blog Home

Rethinking Global Inequality

President Jimmy Carter with President Carlos Andrés Pérez, 1977. Image via Wikimedia.

Explanations for Venezuela’s descent into dictatorship and humanitarian crisis usually begin in 1973, when OPEC countries enacted a five-month embargo on countries backing Israel in the Yom Kippur War. The blockade, during which oil prices quadrupled, added some $11 billion to Venezuela’s treasury in two years and gave the already relatively wealthy developing country the highest-per-income in Latin America. The country’s nationalization of its oil industry in 1976 further boosted revenues but did little to diversify its economy or control runaway spending and corruption. “Scotch whiskey consumption was the highest in the world, the middle class drove Cadillacs and Buicks, and the free-spending upper class jetted off on shopping sprees to Miami,” writes one American political scientist.[i]

What goes up must come down, and when the oil bubble burst in the early 1980s, the story goes, it was time to pay up. Spending cuts and reforms were too modest, at least for Venezuela’s creditors, and public corruption was deep-rooted. In 1989 Venezuela’s government finally accepted an IMF bailout requiring harsh austerity policies—the dreaded “Washington Consensus”—emphasizing privatization, liberalization of labor and capital markets, and cuts to government services. Following several years of social and political instability, in 1998, Venezuelans elected to the presidency Hugo Chavez, a former army officer and revolutionary socialist who promised to return the country’s oil wealth to its people. Inequality in Venezuela fell through most of the 2000s, but by the time current President Nicolas Maduro replaced Chavez in 2013, oil prices had once again collapsed, the country was massively overleveraged, and corruption was higher than ever. According to the Council on Foreign Relations, this history makes Venezuela “the archetype of a failed petro-state.”

The global economy and oil prices no doubt transformed Venezuela in the 1970s, almost certainly for the worse. Less understood is how during that time Venezuela, in concert with other Third World producers as well as consumers, sought to use oil prices to transform the global economy. Historians now acknowledge the oil price increases initiated by Arab members of OPEC in October 1973 as part of a longer and larger arc of Third World efforts toward “economic decolonization” and development. These efforts culminated in the 1974 Declaration on the Establishment of a New International Economic Order (NIEO) at the United Nations. Venezuela’s advocacy for the NIEO during the 1970s deeply impacted its relationship with the United States, especially in the areas of human rights and foreign aid. Yet its warnings about the growing borrowing costs of Third World nations (including but far from limited to itself) were dismissed by the U.S. and other rich countries. Failure to head these warnings led in the 1980s to a debt crisis spanning three continents and a “lost decade of development” for Latin America in particular.[ii]

Introduced into the United Nations General Assembly on May 1—International Labor Day—the NIEO charged that the postwar system was designed by and for the benefit of rich countries, and called for the immediate negotiation toward a new world order “based on equity [and] sovereign equality… designed to correct [past] inequalities and redress existing injustices.” In one sense the NIEO was an economic agenda, laying out an ambitious list of proposals for regulating commodity prices, restricting the activities of multinational corporations, increasing North-South transfers of development aid, democratizing global economic governance, and more. In practice it was to act as a collective bargaining unit—in Julius Nyerere’s words, a literal “trade union”—for the diverse but still largely poor nations of the global South. In the fateful and crisis-ridden 1970s, this meant that the NIEO’s newly wealthy “members” (i.e., the OPEC nations) would use their influence on global commodity prices (i.e., oil) to pressure the global economy’s “owners” (i.e., the United States and its developed capitalist allies) into meaningful concessions and reform.[iii]

As a democratic, developed, and non-Arab founding member of OPEC, Venezuela was an anomaly among oil producers and within the Third World at large. In the 1960s, its progressive president Romulo Betancourt was John F. Kennedy’s chosen partner for the Alliance for Progress, as Betancourt shared Kennedy’s enthusiasm for social and economic reform combined with regional anti-communism. In March 1974, Venezuelans elected to the presidency Carlos Andres Pérez, by a comfortable margin and with record (97%) turnout. A protégé of Betancourt’s and admirer of Chile’s Salvador Allende, Pérez pledged to use the country’s new oil revenues to diversify its economy and improve social services. At the same time, Pérez expanded Betancourt’s domestic and regional progressivism into a strident Third World internationalism, in an era when the United States and its allies had never been weaker. “In Latin America, as in the other developing countries, we can assert that the developed countries have been taking advantage of the fundamental needs of the Latin American, Asian or African man,” Pérez insisted in a lengthy letter to President Ford on September 25, published as a full-page ad in that day’s New York Times. “It is our countries that have always borne the unacceptable burdens of international trade.”[iv]

At the end of the letter, Pérez pledged to Ford “the co-operation and support of Venezuela, a country with a history of long and continuing friendship for your own,” in finding a solution to the global economic crisis. But, he predicted, any efforts that did not include comprehensive, global, and “equitable” negotiations “between the countries producing raw materials and the industrialized countries” would fail. In November 1974, at an emergency food conference in Rome organized by Henry Kissinger himself, the United States found itself completely isolated when it offered little more than the promise of an unspecified amount of food aid. In contrast, Venezuela co-sponsored a resolution supported by several European countries (and opposed by the U.S.) for a new, multibillion-dollar International Fund for Agricultural Development, funded half by OPEC and half by the Organization for Economic Co-operation and Development (OECD). “Pessimism and distrust rise in our minds at the sight of such stances,” Pérez insisted in an 18-page statement submitted to the conference. “Unless the issue of international trade is faced squarely, it will not be possible to detect the causes… responsible for the appalling unemployment which joins with scarcity to constitute the extremely dramatic living conditions of the major part of Humanity today.”[v]

Pérez’s relationship with Jimmy Carter was both more productive and more tragic. From the beginning of his administration Carter wrote to Pérez regularly, describing the latter as his “counselor” on North-South and Latin American issues. Pérez, impressed with Carter’s apparent sincerity on human rights and U.S.-Third World relations, praised his counterpart as “a voice [rising] from a great nation to tell the world that human values are paramount.”[vi]  In June 1977, Pérez helped rally the votes for a U.S.-backed resolution from the Organization of American States (OAS) condemning the Southern Cone dictatorships both he and Carter opposed. When Carter hosted Pérez in Washington a few weeks later, both were optimistic about their future; “coordination of policies might be too easy,” Pérez even joked at one point.[vii]

The Carter-Pérez partnership on human rights crumbled when it came to the issue of global inequality and the NIEO. Newly declassified documents from the Jimmy Carter library show that the administration initially aligned its signature foreign policy initiative in the Third World—human rights—with a global campaign to meet the “basic human needs” of the world’s poorest citizens. This was also a key stratagem to deflect the South’s more ambitious claims for reforming international institutions and democratizing rulemaking. Focusing on alleviating absolute poverty, Carter officials believed, would convince influential NIEO backers like Pérez to “move…away from [an] emphasis on restructuring the international economic system to a pragmatic search for ways to improve it.” At the Conference on International Economic Cooperation (CIEC)—co-chaired by Manuel Pérez-Guerrero, Pérez’s finance minister—U.S. negotiators were instructed to reject any new proposals from developing countries on trade, aid, and, finance; from then on, the strategy went, the United States would focus only on the “practical” issue of fighting poverty now.[viii]

However, developing countries also claimed a pressing concern: their growing sovereign debts. During the 1970s, a large percentage of OPEC revenues were “recycled” through New York, London, and Paris banks to dozens of cash-strapped (and even some cash-flush) developing countries on generous, if uncertain, terms. According to the International Monetary Fund, between 1973 and 1977 the foreign debts of 100 oil-importing developing countries had increased by 150%, almost all of which was owed to private banks. Pérez-Guerrero and others warned about a generalized debt crisis in the global South, should the North enter into a recession and/or raise interest rates. But the Carter Administration refused to take action at CIEC or elsewhere, dismissing the debt issue as “of political importance to LDCs [Less Developed Countries] frequently out of proportion to [its] economic significance.”[ix]

In March 1978, Carter traveled to Caracas in another bid to win Pérez’s support for his basic needs campaign. Their meeting put into clear relief just how different the United States and Venezuela continued to understand the causes of, and solutions to, poverty and underdevelopment. As a delegate to the 1944 Bretton Woods conference establishing the International Monetary Fund and World Bank, Manuel Pérez-Guerrero had watched as American and European officials designed a postwar economic order over the heads of developing countries, reifying earlier patterns of inequality. For the first time in thirty years, it appeared a new global bargain might be possible, and developing countries could return to the negotiating table as equal partners. Yet for all of Carter’s rhetoric, his administration’s actions seemed intended to block just such an outcome. Referring to the CIEC negotiations, an exasperated Pérez-Guerrero explained to Carter: “We have the impression … that even the U.S. at times was more inclined to defend the status quo than create new solutions. There seemed to be at times those who looked to poverty as the problem rather than to structural changes. But while poverty and the need for aid should be attended to, a change in the rules of the game to permit nations to develop more equitably was also important.” Or as President Pérez put it: “Concern over the poor is understood, but poverty is a symptom not a cause.”[x]

The Carter administration’s decision on debt would have profound consequences for both Latin America and the South in general. If not exactly blameless, Pérez was the first to fall. His plan to diversify Venezuela’s economy through a domestic auto industry was an ambitious failure, while easy money fed corruption. Falling oil prices in 1976–77 did not help, and by 1978 Venezuela’s external debt had increased to $6.1 billion, roughly six times its level before the crisis. Limited by term limits, Pérez himself could not run again in that year’s elections, but it hardly mattered. Public corruption had become the focal point of opposition to his government, and even Pérez’s own Acción Democrática party began to block his spending proposals in Congress.[xi] In December 1978, Venezuelans elected as president center-right Christian Democrat Luis Herrera Campins.  “I inherited a country mortgaged by debts,” Herrera told Venezuelans on the day of his inauguration.  His meetings with U.S. officials were dominated not by the North–South dialogue and human rights, but by concerns about falling oil prices and new energy cooperation measures with the United States and Mexico, which had just discovered large oil and gas reserves off its coast.[xii]

Like Herrera, President José López-Portillo— Luis Echeverría’s successor in Mexico—was “expected to moderate Mexico’s flamboyant advocacy of Third World positions.” Echeverría had introduced the December 1974 Charter of Economic Rights and Duties of States to the United Nations, an attempt to extend the NIEO to the status of binding international law. His leadership in the North-South dialogue had become “an irritant” in Mexico’s bilateral relations with the U.S. and had worried both American and Mexican investors, Carter administration officials explained. Calming investor fears was essential for the success of López-Portillo’s plans for a gas pipeline to the United States, which involved a complicated interplay of inviting but also containing U.S. influence in the project.[xiii]

López-Portillo would not return to the North–South dialogue in a significant way until 1981, when he agreed to host a North–South summit in Cancún attended by the new conservative leaders of the U.S. and Britain, Ronald Reagan and Margaret Thatcher. Expected to revive what little spirit of generosity the North had left after a second oil crisis, even more inflation, and the return of East–West tensions, this North–South summit would be the last. Less than a year later, López-Portillo’s finance minister announced that Mexico was defaulting on its foreign debt.

Within three months López-Portillo was out of power. In November a new government accepted a loan from the IMF carrying strict conditionalities, but by then the crisis had spread to Argentina and Brazil. Reagan and Thatcher’s cuts to official development aid compounded the problem, as did Reagan’s own borrowing, which drove up interest rates, and Thatcher’s austerity, which decreased demand. While the largest debtors were located in Latin America and the Caribbean, Asia (the Philippines), and North Africa (Morocco), the crisis hit smaller debtors in sub-Saharan Africa especially hard due to their relative impoverishment. By the end of 1984, at least thirty “structural adjustment” loans had been negotiated in Latin America and other developing countries, in which the banks provided the capital and the IMF enforced the terms. The drive for a New International Economic Order was officially over, and La Década Perdida—the “lost decade”—of development for Latin American had begun.[xiv]

Michael Franczak is a Chauncey Postdoctoral Fellow in International Security Studies at Yale University, where he is completing a book on American foreign policy and global inequality in the 1970s. His most recent article, “Losing the Battle, Winning the War: Neoconservatives versus the New International Economic Order, 1974–82,” appeared in the November 2019 issue of Diplomatic History.

[i] In a widely read October 2018 article in Foreign Affairs, veteran Venezuelan journalists Moisés Naím and Francisco Toro asked readers to “consider two Latin American countries.” The point was to contrast the Venezuela of the “early 1970s” with today’s repressive government and highly unequal society.

[ii] See, in particular, Giuliano Garavini, “Completing Decolonization: The 1973 ‘Oil Shock’ and the Struggle for Economic Rights,” International History Review,33 (Sept. 2011), 473–487, esp. 483.

[iii] UN General Assembly resolution 3201, Declaration on the Establishment of a New International Economic Order, (May 1, 1974), For “trade union,” see Priya Lal, “African Socialism and the Limits of Global Familyhood: Tanzania and the New International Economic Order in Sub-Saharan Africa,” Humanity: An International Journal of Human Rights, Humanitarianism, and Development, 6 (Spring 2015), 17–31, esp. 22.

[iv] Advertisement, “The President of Venezuela Responds to the President of the United States,” New York Times, Sept. 25, 1974.

[v] “A Letter from the President of Venezuela to the Chairman of the World Food Conference Meeting in Rome,” Caracas, Nov. 5, 1974

[vi] Carter quoted in Robert A. Pastor, “The Carter Administration and Latin America: A Test of Principle,” the Carter Center, July 1992, p 24,

[vii] JCPL, RAC, NLC-7-35-2-4-0, Memorandum of Conversation, “President Carter’s First Meeting with the President of Venezuela during His State Visit,” June 28, 1977. “Venezuela’s interests are not the same as ours,” the State Department commented more soberly, “but they are closer to ours than any other regional power.” Cooperation with Pérez on human rights and development “would be a model for similar projects in other developing countries.” “Mrs. Carter’s Trip: The Western Hemisphere in Creative Flux,” May 23, 1977, NLC-24-49-6-2-3, Remote Access Collection (RAC) (Jimmy Carter Presidential Library, Atlanta, Georgia).

[viii]  For more on Carter’s basic needs strategy, see Michael Franczak, “Human Rights and Basic Needs: Jimmy Carter’s North-South Dialogue, 1977–81,” Cold War History, 18 (no. 4, 2018), 447–464. Department of State, “North/South Dialogue and CIEC Strategy,” February 1977, NLC-133-157-1-9-0, RAC (Carter Library).

[ix] Telegram, State to Embassies, April 1977, NLC-24-59-2-4-4, RAC (Carter Library). “U.S. Policies Toward Developing Countries,” (undated, probably November) 1979, Presidential Directive/NSC, NLC-24-101-8-2-2, RAC (Carter Library).

[x] Memorandum of Conversation, President Carter and President Pérez of Venezuela, March 29, 1978, NLC-24-47-2-11-9, RAC (Carter Library).

[xi] H. Micheal Tarver and Julia C. Frederick, The History of Venezuela (Greenwood Publishing Corp, 2005), 133.

[xii] “Carlos Andres Pérez,” The Economist, January 6, 2011, U.S. Congress, Joint Economic Committee, “Outlook on Venezuela’s Petroleum Policy” (Washington: GPO, 1980).

[xiii] “President Carter’s Talks with Lopez-Portillo: North/South Relations,” undated, but probably September 1979, NLC-15-89-6-26-4, RAC (Carter Library).

[xiv] John Toye and Richard Toye, The UN and Global Political Economy: Trade, Finance, and Development (Bloomington, 2004), 258–59. Sara Hsu, Financial Crises, 1929 to the Present (Northampton, 2017), 61. James E. Cronin, Global Rules: America, Britain, and a Disordered World (New Haven, 2015), 145.