Venezuela’s Descent into Poverty, Chaos and Repression

Commentary, Disruption, Ian Madsen

This past week, Nicolás Maduro was sworn in as president of the Bolivarian Republic of Venezuela for his second six year term.  His first term was marked by hyperinflation, violent repression, flight of foreign investors, shutdown of businesses, bankruptcies, riots, food shortages, mass unemployment, widespread hunger, emigration of over three million citizens to neighbouring countries, escalating violent crime, and a general breakdown in rule of law and democratic institutions.  Only fellow socialist nations Cuba, Bolivia and Nicaragua sent representatives to ‘celebrate’ the inauguration.

Venezuela’s descent into misery began with Mr. Maduro’s predecessor and mentor, the charismatic, bombastic former military officer Hugo Chavez.  Mr. Chavez began massive government spending, financed by extracting cash from the state-owned oil monopoly, PDVSA (a Spanish acronym of Petroleos de Venezuela S.A.).  The rising demands from ‘Chavistas’ meant that PDVSA did not have adequate funds to maintain facilities, production, or its oil and gas reserves, once the second-largest such in the world.  

Had Caracas not already controlled PDVSA, its ability to suck the lifeblood out of the national oil industry might have been curtailed.  As it was, the volatile price of oil wrought havoc with government finances, and it felt compelled to try to raise revenue elsewhere: with confiscatory taxes; eventually, restrictive import and capital controls; and, ultimately, printing money, which led to hyperinflation and the impoverishment of nearly everyone except the well-connected and the ruling elite.  

The worst of all this already was apparent before Mr. Chavez died of cancer several years ago, but accelerated as Mr. Maduro desperately played ‘whack-a-mole’ to try to paper over shortages and other failings.  PDVSA’s production and exports plummeted, and loans from friendly autocratic kleptocracies Russia and China dried up. Caracas seized foreign assets and nationalized industries, plundered them, and left them dead.  The unemployed hordes fled abroad, causing instability in neighbouring countries.

Government’s essential role is to maintain the rule of law and institutions that serve the people.  A hard-won precept of Western civilization is that government exists to serve the people, not the other way round. Confidence in government and institutions is hard to keep and easy to lose, especially the trust that personal, economic and market freedoms and rights will be respected and protected, including property rights and currency stability.  These things are hard enough to preserve in developed democracies, let alone in fragile, developing economies with weak institutions and suspicious, skeptical populations, as in Latin America.

There are a few nations in Latin America that have gradually gained the respect of individuals and local and foreign investors, and they have reaped the rewards.  Chile is the most notable one. It is now considered a developed nation with financial, economic, political and social stability, sound rule of law, and a rapidly falling poverty rate.  

Other major nations seeking a more centrally planned, collectivist, or government-centered and less market-friendly path to development, such as Brazil, Argentina, and Mexico have had not only lower economic growth but far less success in reducing poverty and in attracting foreign investors.  Colombia and Peru offer encouraging counter-examples. Trust and confidence are hard to establish in personal relationships or reputations; even more so in nations, institutions, rule of law and economies.

There is no easy way to success and prosperity.  Taking from one group or groups and giving it to one or more other ones does not accomplish this, but just creates misery and strife.  Restoring trust and confidence, let alone prosperity, in Venezuela, will be a long and hard task, as it is in every place that tries to redistribute wealth as a route to nirvana, rather than create conditions that will generate it.