Why Venezuela's 'Plugged-In' Elites Hold the Keys to Its Future

A year ago, the opposition to Venezuela's government coined a term: the enchufados. It translates roughly as "plugged-in elites" (enchufe is the Spanish word for electrical socket), and it refers to the various cronies and other groups aligned with the government that are profiting from Venezuela's massive economic distortions.

The enchufados are a large, heterogeneous bunch, and they arguably hold the key to Venezuela's political future.

Last year, after the death of Hugo Chávez, the opposition candidate Henrique Capriles went negative against his acolytes. He tried to paint Chávez's heirs as simply looking to profit from the government. Now, many in Venezuela talk about the enchufados -- everyone either knows one, is one, wants to be one, or hates one.

Who are the enchufados, and what do they do?

Enchufados profit from the system of price controls and heavy government regulation that characterizes the Venezuelan revolution. They do so by smuggling, importing at subsidized rates, winning government contracts thanks to friends in high places, or being in charge of supervising companies.

Some are in the military, some are business people, and others are public employees. But foreign investors, large multi-nationals, and even foreign countries qualify.

Key among the enchufados is the military. Their main line of business is smuggling -- and the product that accounts for most of the action is gasoline.

Gasoline in Venezuela is the cheapest in the world. A liter of gasoline costs less than a penny, but in neighboring Colombia it goes for about $1.09. The profits from sneaking gasoline across the border are irresistible for the members of the military in charge of safeguarding it. Recent estimates suggest that 60 million liters are smuggled per month over the border with Colombia alone. Aside from that, there is significant smuggling of gasoline to neighboring Caribbean islands, such as Trinidad and Tobago.

The military is in charge of many other "businesses" in Venezuela. Many have been called out for alleged links to the drug trade. Last year an Air France jet landing at Charles de Gaulle Airport in Paris from Venezuela was discovered to be carrying the largest drug haul ever intercepted on French soil. That could not have happened without the consent of the military officials in charge of the international airport in Caracas. (In the photo above, members of Venezuela's National Guard seize a 2.6-ton shipment of cocaine that was on its way to Honduras.)

The military also controls the ports, and frequently takes bribes in order to speed up imports. It is also in charge of weapons purchases, and holds key positions in the oil industry. Essentially, being in the military means no oversight to shady dealings. In that regard, the country's chief enchufado is Diosdado Cabello, the president of the National Assembly and, in effect, leader of the Venezuelan Armed Forces.

As important as they are, members of the military do not work on their own. They have found allies in business people looking for preferential access to cheap dollars that they can then resell in the black market for a hefty profit.

Some of these people come from Venezuela's traditional elites. Others are foreigners connected to governments that are on good terms with Caracas: Many Chinese or Arab businessmen are doing very well in today's Venezuela. Foreign firms whose governments have proven to be allies of the country have also benefitted handsomely. For example, Brazil's Odebrecht, a giant construction company, has billions of dollars in projects with the Venezuelan government.

The enchufados also include Venezuela's veritable "army" of 2.6 million public employees. Many of these hold positions of great power, with Venezuela's hyper-regulated economic environment giving much leeway to bureaucrats' ability to make life miserable for citizens. It is not infrequent to hear of stores being shut down by overzealous inspectors from everything from the tax agency to the agency in charge of price controls.

Enchufados play an important role in Venezuela's power dynamics. Many of the government's nonsensical economic policies are made to ensure they continue reaping the rents from their positions of power -- and stay out of the government's hair. All of Venezuela's distortions benefit someone, and with the government's plummeting popularity weakening its grip, it needs to keep these power players happy.

Distortions keep bureaucrats busy collecting bribes and reaping the benefits of their power. The rents public employees collect "on the side" keep them off the streets, where they would normally be protesting against their low wages. Likewise, the benefits from the black market keep the military happy. And business people making money off of the government are less likely to conspire against it. Add all this up and it becomes unlikely the government will eliminate currency or price controls: They may be causing scarcity, but they are needed in order to keep the enchufados happy.

Some investment banks have seen signs that the Venezuelan government is opening up to more rational economic policymaking. Their hope is that the government has finally understood that price controls, currency controls, and the hypertrophied socialist model at the root of Venezuela's current troubles will all be dismantled.

This is unlikely. While there will be some tinkering, distortions are not going to go away altogether. They are an important tool in keeping the chavista coalition together. Current distortions are wrecking the Venezuelan economy, but they are a useful political tool for the government.

In that regard, the enchufados will remain plugged in for some time to come.

Juan Nagel is the Venezuela blogger for Transitions, editor of Caracas Chronicles, and author of Blogging the Revolution. Read the rest of his posts here.



Democracy Lab Weekly Brief, May 19, 2014

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