By JOSÉ DE CÓRDOBA
Staff Reporter of THE WALL STREET JOURNAL December 24, 2004

CARACAS, Venezuela -- Trying to foment a Communist revolution here in 1976, Carlos Lanz and five other men kidnapped an American executive, who then spent much of the next 3˝ years chained to a tree in the jungle. The revolution didn't arrive and Mr. Lanz went to prison for military rebellion.

Thanks to Venezuela 's fiery president, Hugo Chávez, Mr. Lanz is getting a second go at revolution in the world's fifth-largest oil exporter. Buoyed by oil billions and back-to-back electoral victories, Mr. Chávez recently gave the ex-guerrilla a new job: devising a plan for economic self-sufficiency in which selfless workers would labor contentedly in utopian cooperatives. Mr. Lanz says he wants to create nothing less than Venezuela 's "New Man."

"We are talking about the transformation of man's attitudes," says Mr. Lanz, now 60 years old, during an interview in his office high above the armies of peddlers who bivouac in Caracas's decaying city center. Among his goals: having Venezuelans eschew Pepsis and Big Macs for sugar-cane juice and Venezuelan-style pancakes called cachapas.

Chávez officials say they are creating "endogenous" development, borrowing a term that economists use to describe a process that comes from within an economy, as opposed to, say, changes brought about by globalization. In Venezuela , this is often overlaid with Marxist rhetoric and signals the presence of a heavy state hand running an economy walled off from international competition -- the kind of development most Latin American nations rejected as unworkable in the 1990s. If Venezuela 's ambitious experiment collapses, the ensuing instability could shake the region and global oil markets.

Hugo Moyer, the official in charge of endogenization at the state oil company, Petroleos de Venezuela, or PDVSA, calls the policy "development from within, with materials from within, by those within for those within."

To accomplish that goal, the Chávez government is plowing billions of dollars into new programs, called "missions," which act as social welfare agencies. Mostly financed by the PDVSA and run by a hodgepodge of bureaucratic offices, the missions are largely devoted to health-care education and jobs training. They exist as a sort of parallel government and are controlled by Mr. Chávez. The missions provide hundreds of thousands of Venezuelans with monthly stipends to learn everything from reading and writing to setting up cooperative farms. Mr. Chávez plans to combine the dozen or so existing missions into a megaproject dubbed "Mision Cristo," or Christ's Mission, which he proclaims will end poverty in Venezuela by 2021.

The programs are a hit among Venezuela 's poor and are helping solidify Mr. Chávez's political base. Mr. Chávez has made a political career exacerbating Venezuela 's bitter social divisions. Despite the country's oil wealth, about 61% of the people survive on less than $2 a day, according to a survey by the Andrés Bello Catholic University in Caracas.

Mr. Chávez's critics charge that his programs cost PDVSA billions of dollars needed to keep up oil production. Analysts say production has fallen to about 2.6 million barrels a day from about three million in the aftermath of a devastating strike that ended last year. The government disputes that estimate. Mr. Chávez's program, detractors say, will produce subsidy-dependent enterprises that compete unfairly with private Venezuelan companies and foreign firms. They add that Mr. Chávez's tendency to throw money at Venezuela 's deep-rooted social problems is unlikely to provide lasting solutions.

Government and private business have been at each other's throats since shortly after Mr. Chávez took office in 1999. The mercurial Mr. Chávez loves to excoriate his mostly middle-class opposition -- from small shop owners to matrons -- as "oligarchs." He regularly lays into the U.S., which is Venezuela 's biggest customer for oil and also the source of most of its imports.

After the oil strike, opponents organized a recall referendum on Aug. 15. Mr. Chávez won the poll by a large margin, amid claims the voting was rigged. Earlier, he survived a short-lived coup. The constant strife has battered Venezuela 's economy, which has lost 2.5 million jobs in the last five years. "He is the anti-Midas," says Heinz Sonntag, the former head of the Central University of Venezuela 's economic development center. "He turns gold into dung." Thanks to sky high oil prices and a spurt in government spending, Venezuela 's economy is expected to grow as much as 16% in 2004 after falling sharply in recent years.

PDVSA says it will spend $3.7 billion this year and an equal amount next year for Chávez-approved social and economic-development programs. Earlier this year, the company turned an empty fuel-storage depot into a development zone dubbed the Fabricio Ojeda Endogenous Development Nucleus. The center boasts clothing and boot-making cooperatives, a state-of-the-art clinic and school, a food market and a 10-acre farm built on a steep hillside in the middle of the city's slums.

At one recent training session, a group of mostly middle-age women workers, dressed in white blouses and blue pants, cut cloth for T-shirts. A PDVSA employee, Omar Ruiz, gave 18 co-op members a primer on the flaws of capitalism. Mr. Ruiz encouraged his students to imagine a regular factory. They soon came to the conclusion that the owner, played by their short, bearded teacher, was appropriating the fruit of their labor. "They realize they are very poor and I am very rich," said Mr. Ruiz. "Then we change that by setting up an alternative, non-capitalist model, and everybody wins."

Then the class turned to the problems of their own clothing cooperative, named "Venezuela Advances." The co-op, which has a $2,600 order from PDVSA for a thousand T-shirts, received a 20-year, interest-free loan from the state of $2.6 million. The 280 people who work there each agreed to invest about $26 of their own money over five months. Only three out of the 18 class members were up to date on their monthly quotas, not enough to support the company, even with its fat subsidies.

"To live from the company, we must invest in the company!" thundered Mr. Ruiz.

To plot Venezuela 's new direction, Mr. Chávez has recruited a mix of radicals, ex-guerrillas and military officers. Planning Minister Jorge Giordani, who is charged with devising the government's poverty-fighting strategy, was once known as "the Albanian" for the orthodox Marxist views he held in graduate school. He formed part of Mr. Chávez's early brain trust, tutoring Mr. Chávez when the future president was serving time in military prison for leading an unsuccessful coup in 1992.

Elias Jaua, the head of the newly created Ministry of the Popular Economy, was until 1991 a student leader of Bandera Roja, a former Marxist-Leninist guerrilla group, according to Gabriel Puerta, the national director of Bandera Roja. That group, which has since disavowed armed struggle, opposes Mr. Chávez.

In his former role, Mr. Jaua helped lead violent protests at the Central University of Venezuela every Thursday, in which students known as "encapuchados" or hooded ones, threw rocks and Molotov cocktails at police, Mr. Puerta says. A spokesman for Mr. Jaua says the minister was a student leader, but not in Bandera Roja, and didn't participate in such altercations. He says such accusations are part of a campaign to discredit him.

Then there is Mr. Lanz, one of the principal ideologues for endogenization. Mr. Lanz wants to move slum dwellers from beehive-like barrios to new lives tilling the soil in government-planned farm cooperatives and other rural businesses. He faults the Khmer Rouge, the murderous Communist regime in Cambodia, for compelling people out of the cities in 1975 and promises that the Chávez government won't use force. "We will conduct, convince, have them fall in love and seduce them with successful alternative proposals showing that one can live, under 'X' conditions, in rural areas," he says.

In 1976, Mr. Lanz and five other men entered the Caracas home of William F. Niehaus, Owens-Illinois Inc.'s top Venezuelan executive, pretending to be investigating an auto accident. They bound and gagged his wife Donna and the maid and locked them in the sewing room. Mrs. Niehaus escaped from after half an hour with the help of a pair of scissors. The kidnappers injected Mr. Niehaus with a sedative, and took him off to the jungle. The kidnapping was designed to gain international attention for the group's goals.

Mr. Niehaus says he wasn't tortured, but that he slept chained to a tree and lost 60 pounds. In 1979, policemen and farmers looking for cattle rustlers stumbled onto the hut where he was held. They killed two guerrillas guarding Mr. Niehaus and freed him. A year after the kidnapping, Mr. Lanz was arrested. Mrs. Niehaus flew to Caracas and identified him as one of the kidnappers.

Although Mr. Lanz and his comrades failed to overthrow the government, the kidnappers got a lot of publicity -- including the publishing of guerrilla manifestos in leading newspapers throughout the world. Mr. Niehaus, 73, now a consultant in Toledo, Ohio, says of Mr. Lanz: "I try to forget him."

Mr. Lanz spent eight years in prison and used the time to write a book called "The Niehaus Case and Administrative Corruption," which is now out of print. He says he assumes "political responsibility" for the kidnapping, without elaborating.

In a recently published pamphlet titled "The Revolution is Cultural or It Will Reproduce Domination," Mr. Lanz wrote that the state must fight a relentless war against junk food, replacing hamburgers and sodas with native foods. That could help cure Venezuela of the consumerism it has imported from the U.S., he says. "I've been called a gastronomic fundamentalist," he adds.

Mr. Lanz and Mr. Jaua run "Mision Vuelvan Caras," or Mission About Face, a program whose goal is to transform the economy into a network of state-financed cooperatives producing everything from organic lettuce to endogenous anti-riot vehicles modeled on the U.S. Hummer. Fifty-five of these have already been built for the Venezuelan military.

So far, says Mr. Jaua, close to 34,000 cooperatives in agriculture, construction, services and manufacturing are in the works. Some 206 centers for endogenous production are already up and running throughout the country, he says. The government is paying about 400,000 members of its cooperative-training program a monthly stipend of roughly $100, for up to a year, to take classes in setting up cooperatives. It wants to triple the number of students.

Despite Mr. Chávez's admiration for Cuba, few expect him to go as far as Fidel Castro and expropriate private and foreign businesses. The government already owns the oil sector, which produces export revenue of $26 billion, or about 80% of Venezuela 's export haul. Opinion polls also suggest an overwhelming majority of Venezuelans oppose any attempt to duplicate the Cuban regime. Mr. Chávez has nonetheless constricted foreign participation in Venezuela 's oil industry and is using oil money to set up a new state-run airline and a state-run telecommunications company -- years after the government sold off those assets in a push toward free markets.

The endogenization program has boosted Mr. Chávez's popularity, especially among the poor who benefit most. "I'm taking the opportunity President Chávez has given me," says Ana Guedes, a 39-year-old seamstress. "He is the best president we've ever had." Previously unemployed, she is now paid $100 a month as a member of Mision Vuelvan Caras. Mr. Chávez's approval ratings have doubled from a low point of 30.8% in July 2003, before the Missions began operation, to 59.2% in September, according to Datanalisis, a Venezuelan pollster.

Even critics say some of the activities, such as bringing Cuban doctors to the barrios, have helped millions of slum dwellers who had little access to health care. It's less clear whether various education projects, which essentially consist of funneling money to the poor, have had much effect, says Luis Pedro Espańa, an expert on social policy at the Andrés Bello Catholic University. For instance, says Mr. Espańa, most Venezuelan illiterates are women over 55 living in rural areas. Mr. Chávez's alphabetization program, called Mission Robinson, is mostly aimed at the urban population.

At Fuerte Tiuna, the headquarters of Venezuela 's armed forces, base commander Col. Antonio Alcalá says the program helps Venezuela . Col. Alcalá, who like Mr. Chávez spent time in military prison after the failed 1992 coup, is teaching residents of nearby slums how to grow vegetables on their roofs without chemical-based fertilizer, a technique developed by Cuba. He says some 70,000 one-meter square "micro-plots" are being cultivated in the slums around Caracas, helping wean Venezuela off food imports.

Digging his hands into a trough of fertilizer made by millions of worms fed on cow dung, Col. Alcalá praises the future of Venezuela 's new agriculture. "In a couple of years, we'll be selling vegetables to Cuba," he says.