Tuesday, 7 March 2017

VENEZUELA: The Debacle of Socialism

Venezuela, once the wealthiest South American country with vast oil resources, is suffering under runaway inflation of 57 percent a year, the highest rate in the world. And, the growing political violence in Venezuela has its roots in the country’s calamitous economic situation.

Five years ago, Venezuela had $30 billion in foreign reserves. Now the Central Bank of Venezuela says that the country is down to just $10 billion in foreign reservesNearly $7 billion of the country's remaining reserves is gold. Dwindling foreign reserves are only exacerbating the humanitarian crisis in the country. The economic blow has led to food and medical shortages, as well as skyrocketing prices.


Inflation is expected to rise to 1,660 percent this year and 2,880 percent in 2018. Among the key factors boosting inflation experts see the crashing bolivar , huge government spending, poor management of the country's infrastructure, as well as high level of corruption.


Aside from the economic scarcity, Venezuela is still no worker’s paradise. With 82 murders for every 100,000 residents, Venezuela is high on the list of the most dangerous countries in the world. A pair of designer shoes can be enough to get somebody killed. The leftist regime seems to be leaning so far over precipice that they have now arrested the popular opposition politician Antonio Ledezma under false accusations. 


Chávez wanted to create nothing short of a shining paragon for socialism in the 21st century. In European leftist salons, it was hyped as a model for the future. The story of the charismatic Chávez was in the beginning very alluring. When the Comandante seized Venezuela, it had been ruled by two clan-like, corrupt parties. Oil money flowed only to the ruling class and their minions. The masses of the poor received nothing but crumbs. To make matters worse, those in power in the government and the oil industry hardly bothered to hide their arrogance and contempt for the lower classes.

There was something in the air when Chávez carried out a putsch against the social-democratic President Carlos Pérez. Though the state was overthrown, and the Lieutenant-Colonel was placed in prison. But for the have-nots the act was a beacon of hope, and Chávez was a hero. Finally, in December 1998 the Comandante was voted into the presidency.

Under Chávez the unemployment rate sank from 14.5% to under 8%, the poverty rate fell from 50% to around 31.9%, and secondary education for the country’s citizens was offered from 44.8% to 73.3% of the population.

But there was one problem. Chávez only thought in one dimension: the expansion of the power of the state. His supporters—the “Chávistas”—helped him create a bureaucratic leviathan that extorted full control over society. What was left of the bossed-around private sector he eventually snuffed out. There was a lack of investment in the country’s infrastructure, nor did they attempt to control foreign trade and imports.

The expropriation of the land ownership and building of food production on a socialist model was a fiasco. State-run production co-ops, large-scale breeding farms, and sugar factories soon generated—with the state’s allowance—remarkably low output. With the exception of crude oil, Venezuela today produces nearly nothing! The Socialists have to import three-fourths of their consumer goods, food included.

The development of an industrial sector did not matter. Lots of funds flowed instead to their allies around the world. Overtime Chávez gave away barrels of oil worth about 260 million euros according to the opposition. He financed his apologists Evo Morales in Bolivia and Rafael Correa in Ecuador, and he carried an ailing Cuban regime on his back.

The fact that Chávez drove a potentially rich country into the ground hasn’t mattered for a long time. At first, the price of oil could only go in one direction: up. Money kept flowing in, allowing Chávez to really play at Socialism. With rigorous redistribution politics the Caudillo succeeded in keeping millions of his followers compliant. Either they found a job in the overinflated apparatus of the state, or they profited through the subsidization of food and cheap gasoline.

Early on the Socialists armed their supporters—ostensibly in order to guard themselves against an invasion by their archenemy the USA. In reality they raised their threat potential against any opposition. In certain districts of the capital Caracas the real power lies in the thugs loyal to the government known as “colectivos.” Through its de-facto control of the media, the regime has all the means it needs for a continuous stream of propaganda and disinformation.

With the plummeting price of oil everything is now really going downhill. The collapse of “21st century Socialism” is now being felt by even the most loyal Chávez followers. The economy shrunk about 4.8 percent in the past year. This year it will be even worse. Inflation is expected to rise to 1,660 percent this year and 2,880 percent in 2018. Chávez’s hapless successor Nicolás Maduro’s only ally for maintaining power besides violence is printing money.

Venezuela can barely refinance itself on the credit market. Maduro—who in terms of charisma is closer to Dick Cheney than Chávez—recently went on a begging tour to his “allies” in Russia, China, and Algeria. Though there were friendly words from the Chinese, they are only willing to throw a limited amount of funds into a bottomless pit. Maduro stands naked.

It’s no wonder that the trained bus driver will not hold out for long. New civil unrest will break out, of this Venezuela experts are certain. Which road Venezuela will take next nobody can say for sure. From a coup by the leftist military or the powerful head of parliament, from a possible transformation to democracy to the total dissolution of the state: It’s all up in the air. The people of Venezuela have hard times in front of them.

The martyrdom of Venezuela is an example for why Socialism cannot work, even when it is pumped with petroleum-millions. Corruption, cronyism, bureaucracy and the lack of private wealth have impeded every initiative. Also, state planning is less efficient than the market. For example, Maduro fixed price caps –now in the time of inflation—fully out of touch with reality. Milk must be sold below cost—which is a maximum incentive for smuggling. 

What this reveals: 21st century Socialism and economic rationality are operating in parallel universes, which was just as true for 20th century Socialism. But the leftist salons will continue to dream of a better Socialist world.

By Guylain Gustave Moke
International Affairs Expert
Political Analyst/Author

Photo-Credit: AFP-Photo