Venezuela: An Economic Autopsy
Robert Petrosyan, Senior Fiscal Policy Editor
In early August, there were quite a few stories in the news. The election is a 24-hour media cycle dream: we have chaos going on in both Europe and in the Middle East, and we have the usual celebrity tabloid content that floods our media. However, there was one article that stuck out to me most of all, and it’s appalling that it did not receive more coverage. This one.
Yes, you read that right. Venezuela, once the richest South American country by far, has resorted to legalizing slavery to curtail the rock bottom of its well-documented economic collapse. In an executive order decreed two weeks ago, Venezuelan President Nicolas Maduro declared that the government could force its citizens to work on its fields for up to sixty days at a time, or longer, if circumstances permit.
I guess by socialist logic, if you can’t get the economy to work, you force it to work. The once powerful Venezuelan economy, one that rivaled that of West Germany in 1950, has reduced itself to having to enslave its own citizens just for its self-subsistence. We’ve seen and glossed over so many headlines that detail the sorry state of the Venezuelan economy, whether it’s shortages of food and supplies, or its thousands of refugees beginning to flee to Colombia, or its corrupt government officials embezzling funds for their own personal use. But we have never seen something quite like this.
Hugo Chavez took over during a time of economic trouble and instability, with inflation nearly hitting 100%. Chavez rode a charge of anti-imperialism and Bolivarian nationalism to win the presidential elections in 1998 and enact a socialist agenda in Venezuela. Through the immense oil revenues that powered Venezuela’s economy, Chavez was able to not only win popular support, but also regional support in South America, leading to a “Pink Tide” of socialism spreading throughout the continent.
However, as we know all too well, the problem with socialism is that eventually you run out of other people’s money. Shortages of supply and high inflation were already a big problem during the Hugo Chavez years, and when Nicolas Maduro took over in 2013, the economy only got worse, especially without a strongman like Chavez to keep the regime in line.
The fall in oil prices in recent years is obviously one reason why the Venezuelan economy is suffering, especially since 95% of its export economy is oil based. However, to say that the crisis going on right now is solely due to oil prices is fully disingenuous. Rather, this is an inevitable result of central planning.
For the last five years, Venezuela topped the Misery Index, a measurement accounting for the rate of unemployment and inflation in a country. It’s no surprise that unemployment is high considering the artificially low supply that comes with government constraints and price controls. It’s also no surprise that the rate of inflation is so high yet their Finance Minister claims that inflation doesn’t exist.
It does exist. This year, inflation is projected to reach 700%, and next year, it is projected to hit a whopping 2,000%. The poverty rate of the once-prosperous country has hit 80% and it shows no sign of slowing down. Corruption is rife as public officials choose not to distribute or sell scarce goods under price controls, and instead sell for a profit to Colombia instead. Venezuela’s crime rate was already sky high before the recent downturn, with its capital Caracas being known as the murder capital of the world. After Maduro took over, the murder rate nearly doubled to 62 people per 100,000 citizens in 2014, the year with the most recent crime statistics.
The social and economic follies of Venezuela’s economic crisis are proof once again that central planning fails, because no government can know what the aggregated populace demands. Price controls that appeal to populist and socialist rhetoric only stifle production, which leads to scarcity and inflation. Additionally, an “end justifies the means” economic approach that justifies government control over production is one that also breeds a culture of corruption and ignorance, which has significantly contributed to the crisis we see today.
We are already seeing a growing number of refugees flee the country, both for nearby countries like Colombia and Guyana, and also further out into the Caribbean and even the United States. Given all that has transpired recently, it’s no surprise. Even major legislative victories by political opposition groups have failed to usurp President Maduro’s power, as he has claimed a state of emergency three months ago, and points to US imperialism as the cause of Venezuela’s problems, as opposed to its own internal policies.
It’s important that political leaders all over the world pay attention to the Venezuelan crisis and become aware of the consequences of excessive government power and central planning. The world should stand with the opposition and resistance in Venezuela while directly assisting those who are suffering. It should also learn from the mistakes of the Chavez-Maduro regime, and use the real life results of socialism that we see today and throughout history counterbalance the idyllic image that purveyors of socialism spread.
Follow this author on Twitter: @RobertP1287