Declaring that he was acting in the name of Christ -- the “greatest socialist in history” -- Hugo Chavez last week reiterated his intention to nationalize U.S.-controlled telecommunications and electrical firms.
The proposed nationalizations, a key component of Chávez’s platform of “21st Century socialism,” sent Venezuela’s currency and financial markets into a tailspin. In a televised speech, Chávez also called for eliminating the Venezuelan central bank’s autonomy and proposed that he be given additional powers, enabling him to rule by decree.
But Chavez’s biggest prize is Venezuela’s largest publicly traded company, the telecommunications firm Compania Anonima Nacional Telefones De Venezuela (CANTV). "Let it be nationalized," Chavez announced. "The nation should recover its property of strategic sectors."
Before 1991, to be sure, CANTV was a state-owned telephone company. It also was an international basket case. People calling across town had trouble getting a dial tone, much less a connection. Calling other cities was virtually impossible. I lived in Caracas during these years, working as a foreign correspondent for several American daily newspapers and news outlets. The story of what CANTV was -- and what it became in the hands of can-do American managers -- is a remarkable one. It’s also testimony to the power of markets to transform an economy by spurring investment, transparency, and accountability.
As a state-managed company, CANTV was rife with do-nothing political patronage jobs and corrupt unions that got what they wanted. It was, in short, what you’d expect in nation with a statist economy, one that has consistently ranked as one of the world’s most corrupt, according to corruption-watchdog Transparency International.
Venezuela had a population of about 20 million people at the time, yet only 1.6 million of them had telephones. It wasn’t for lack of money. Rather, the money-losing state phone company took years to hook up phone lines – unless you had political connections, bribed the right officials or purchased a stolen line. So poor was the quality of services that CANTV even took out advertisements asking its customers not to use the phones too much.
Like many Third World countries, Venezuela realized it needed a modern telecommunications system to develop its oil-producing economy. After a highly politicized congressional debate, it privatized CANTV. A GTE Corp.-led consortium won a bidding process and acquired 40 percent of CANTV for $1.9 billion. The government retained 49 percent, and workers kept the remaining 11 percent. (Dallas-based GTE Corp. merged in March 2000 with Bell Atlantic to form telecom giant Verizon Communications Inc.)
Consider some of what the privatized CANTV accomplished. From 1992 to 1994, it invested more than $1.1 billion to upgrade and expand Venezuela's phone system – more than was spent during the 20 years preceding privatization. Led by American managers, CANTV's 22,000 employees installed more than 863,000 phone lines by 1994 – 4 and a half times as many as were installed during the two years preceding privatization. More than 460,000 customers were added, three times more than CANTV connected during the two years before privatization. The result was that by 1994, callers almost always got a dial tone, and they usually got a connection.
“The telecommunications system here was very poorly designed and maintained, with 40-to 50-year-old technology,” CANTV's then-40-year-old president Bruce Haddad, a 19-year GTE veteran, told me during an interview in July, 1994. (Haddad was killed in a tragic plane crash in 1997.) Reforming this culture of mismanagement was no easy task, however, and Haddad had his share of problems. He was spoofed on a Venezuelan comedy program, and was called a “gringo” and “foreigner.” At one point, an arrest warrant that seemed politically motivated was issued against him. He was charged with complicity in a natural gas pipeline explosion, caused by a CANTV sub-contractor, which incinerated more than 50 motorists on a major highway. After lying low for a while, Haddad eventually turned himself in and was exonerated.
He and fellow GTE Corp. managers kept the company moving ahead through two bloody coup attempts (one by the then-unknown Lt. Col. Hugo Chávez ); draconian currency exchange controls; a 100 percent currency devaluation; 70 percent interest rates; and annual inflation of up to 100 percent.
Thanks to the new management style, however, the company prospered. Haddad and a fellow GTE Corp. senior executive, Douglas Mullen, shocked Venezuelan workers by mingling freely with them at functions designed to build esprit de corps – something most status-conscious Venezuelan managers would never do. Mullen, who headed a CANTV subsidiary that published Venezuela’s phone directories, was intent on creating a new company culture. He decided that militant unionized workers had to go. "We laid them off and paid them off to get a fresh start,” Mullen, then 54, told me during an interview in July, 1994. He added that workers were given a severance package that was 33 percent more than they were entitled to. He then hired more than 500 workers, including 150 former employees who agreed to work in a team-oriented, nonunion atmosphere.
Pay-for-performance schemes for managers were introduced, and salaries, like at CANTV, were raised to competitive levels. Mullen, a 26-year GTE veteran at the time, turned the company around. In 1994, it sold $20 million of advertising space for its Yellow Pages – more than twice the amount sold the year before privatization. The new firm, moreover, provide every user with a phone directory – whereas only 40 to 50 percent got them before privatization.
It will be interesting to see how CANTV fares once its controlled again by Venezuelan managers – state employees of a government that, by all accounts, is involved in record levels of corruption. If history is any guide, “21st century socialism” will prove no more adept at business than its 20th century predecessor.
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