LONDON – I remember the exact date of my visit to Venezuela. I was sunbathing by the pool on the roof of the Caracas Hilton. A waiter came up to me and mumbled something about a bomb attack in New York. I rushed to my room and saw the news footage, endlessly replayed, of two airplanes crashing into the World Trade Center.I was in Venezuela on September 11, 2001, to attend a conference on the "Third Way.” Hugo Chávez was very interested in the Third Way – a modus vivendi between American-style capitalism and state socialism – as had been Tony Blair a few years earlier. Chávez himself, dressed in fatigues, briefly graced the meeting with his presence, receiving a heavy volume of Marxist texts from an elderly professor.A day earlier, I had had lunch at the Venezuelan central bank, sitting next to the deputy governor, Gastón Parra Luzardo. He told me that all Venezuelans believed that they had been born with a "loaf under their arm” – that is, a right to a share in the country’s oil revenues. As a result, no one worked hard. An economist, Orlando Ochoa, explained that rent-seeking dominated the Venezuelan economy. Oligarchs fight to keep control over the oil revenues, populists promise to redistribute them, and both groups steal as much as they can for themselves. No one is interested in creating wealth. "No one,” I wrote in my diary, "believes that Chávez will last his full term. They see him as a damaging buffoon, rather than as a dangerous revolutionary.” In fact, a coup against him was attempted a year later. He survived it, and went on to win a second, a third, and then a fourth term.The debate over Chávez’s political legacy is a posthumous re-enactment of the ideological battles that were fought while he was alive. The battle for his economic legacy is more straightforward: it comes down to how he managed Venezuela’s oil wealth.Venezuela has the largest oil reserves in the world, and Chávez’s economic strategy depended on harnessing that wealth in order to address his country’s social problems. The first few years of his rule were dominated by his struggle to gain control of the country’s state-owned oil company, PDVSA.Upon reasserting political control in 2003, Chávez fired 40% of PDVSA’s staff. His hostility to foreign players in the industry (he expropriated several American oil companies’ holdings in 2007) limited investment and held back production. Chávez turned PDVSA into a personal fiefdom and used it as a cash cow; many of his social programs were funded directly from the company’s budget.Starved of cash, PDVSA was forced to cut back on maintenance and expansion, which increased the number of accidents and limited production. Thanks partly to Chávez’s policies, Venezuela is still a small player in the global oil market, with less than a 3% share of world production. It is therefore vulnerable to price fluctuations, and has to follow the lead of Saudi Arabia and other big OPEC producers.Though Venezuela’s non-oil sector has been growing, oil still provides the vast majority of its dollar earnings. For the past decade, booming oil prices have spurred economic expansion, with only a short break following the financial crisis of 2008. Yet stumbling oil-export performance and a sharp rise in infrastructure-related imports, combined with an explosive growth in public spending, have fueled consistently high levels of inflation, with the annual rate now at more than 20%.This has put immense pressure on Venezuela’s dollar-pegged currency, the bolívar. In early 2013, the government was forced to announce a 32% devaluation, and stopped issuing government debt in dollars. The issuance of dollar bonds was a major source of abuse, with speculators buying dollar debt at the official exchange rate, selling it for greenbacks, and then exchanging them for bolivars at a much higher rate on the black market.With limited access to global capital markets, Chávez turned to China for loans, backed by sales contracts for oil. Loans from the China Development Bank carry higher interest rates than the West’s traditional lending mechanisms, but they also come with fewer restrictions on policy, and allowed Venezuela to escape the worst of the bondholders’ wrath – at least so far.Where has the oil wealth gone? Chávez’s social programs were the biggest beneficiaries. He used to go around the villages writing checks to poor farmers. The most reliable data suggest that he was successful at reducing inequality; during his rule, Venezuela’s Gini coefficient, a 100-point scale measuring income inequality, fell from 50 to 39, the biggest decline in Latin America. Poverty was cut in half – from 50% to around 25% of the population, while extreme poverty fell by two-thirds.One can hardly say that every céntimo was well spent. Cronyism was rife and the murder rate tripled, partly owing to corruption in the police and the justice system. Chávez’s petro-diplomacy sometimes took bizarre forms, like providing cheap bus travel for Londoners to please London’s left-wing mayor, Ken Livingstone.Despite his extravagancies and authoritarian style, the masses loved him. They fervently believed that he was on their side, and voted overwhelmingly for him up to the end, even when they knew that he was dying of cancer. He is sure to enter the pantheon of Latin American heroes.And what about the Third Way? In the aftermath of the collapse of communism, Chávez’s mix of anti-Americanism and state activism seemed merely eccentric. There could be no alternative to free markets and the neoliberal Washington Consensus – or so it appeared.The writer is Professor Emeritus of Political Economy at Warwick University and a fellow of the British Academy in history and economics.