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This is the second of five country case studies on income inequality, and shows that income inequality in Venezuela has significantly worsened during the past 27 years; in particular, the worsening has taken the form not of higher inequality among workers, but of higher inequality between those who own and those who do not own capital. Factor shares (shares of factors of production) have moved decisively against labour during the last three decades, resulting in a transfer of approximately 15% of GDP from labour to capital income: the data show an average worker in the late 1990s to be roughly half as well off in terms of income as an average worker in 1970. The chapter examines several possible explanations for the change in income inequality. It has six sections: Introduction; What the data say; Factor Shares, Factor Prices, and Oil Booms—an attempt to explain the evolution of factor shares on the basis of the evolution in human and physical capital accumulation; Other Influences on Income Distribution—an examination of alternative influences on factor shares; Labour's Loss of Power and the Political Economy of Inequality—an in‐depth discussion of the loss of political power by the Venezuelan labour movement and the relationship of this with the main hypothesis presented by the chapter; and Concluding Comments. The main thrust of the explanation offered is that the increase in Venezuela's income inequality can to a great extent be traced back to the decline in the country's physical capital stock and its rigid production processes, although policies such as trade liberalization, contractionary macropolicies, and capital account convertibility have made a far from negligible additional contribution.

This chapter traces the origin of the term ‘Washington Consensus’ to a paper written for a conference in 1989 that aimed to explore how the set of ideas accepted as a basis for policy in developing countries had changed. Ten policies — covering the areas of macroeconomic discipline, microeconomic liberalization, and opening up the economy (globalization) — were asserted to be widely believed in Washington as widely needed in Latin America, and the conference papers were intended to explore the extent of agreement with those propositions in the region. The term subsequently evolved: while some people continued to use it in the original sense, it has also been identified with IMF/World Bank policies (and thus used to embrace capital account convertibility and the bipolar exchange rate doctrine as well as institution-building and anti-corruption policy) and with a belief in market fundamentalism. The chapter argues that this is a very different usage with little support (and certainly not consensus support) in Washington. It concludes by emphasizing that the reforms listed in 1989 are not adequate for the present day, and outlines desirable directions in which to supplement them.

This chapter provides an analytical foundation for a discussion of currency concepts. It describes terms such as capital account convertibility, exchange rate flexibility, and purchasing power parity. It also explains the differences between an international currency, one that is used widely in international trade and finance transactions, and a reserve currency, one that is used by foreign central banks to store their foreign exchange reserves.