(Bloomberg opinion) – It is hard to exaggerate how the reign of Hugo Chavez and his successor, Nicolas Maduro, was catastrophic for Venezuela. A recent series of Bloomberg articles strikingly describes the infernal and endless struggle for survival in Caracas, the country's capital. Hungry children roam the streets, people flee the country, health care is almost non-existent, violence is rampant, even water is scarce. Chavez's so-called Bolivarian revolution took a peaceful middle-income country and turned it into a nightmare that shames the ruin of the Soviet Union in the 1980s.
It is important for other countries, including rich countries like the United States, not to ignore Venezuela, but to use it as an edifying account. Politicians like Sen. Bernie Sanders and Alexandria Ocasio-Cortez have adopted socialism, like many young Americans. But what are the lessons of Venezuela? Why has the country become such a case?
Defenders of the Bolivarian revolution often apologize to the Chavez-Maduro regime, saying that the country's shortage is the result of external forces. For example, some argue that it is the fall in oil prices in late 2014 and 2015 that sank the country. Venezuela is a prosperous country – with petroleum products accounting for about 95 percent of the country's exports in 2014, the drop in prices was a blow.
Although the drop in oil prices has undoubtedly made the situation more difficult for Venezuela, it can not be the main cause of the collapse. Venezuela stopped publishing many of its economic statistics in 2014. But other countries such as Saudi Arabia, Russia, Nigeria, Angola, and Kuwait saw their incomes stagnate or even drop after 2014, but they did not experience anything like the devastation that hit Venezuela:
The country has not been attacked by the capitalist powers either. Under President Barack Obama, the United States imposed sanctions on some of the country's officials in 2015, and President George W. Bush refused to sell arms to Venezuela, but these were not general sanctions. likely to seriously affect the country's economy. . No reactionary army or bomber devastated the cities of Venezuela; The impoverishment of the country is entirely attributable to itself.
Venezuela's critics may also be too sloppy. It is easy to wave and declare that socialism always fails. But Bolivia, another Latin American country dependent on natural resources, elected a socialist president, Evo Morales, in 2006. And Bolivia is doing well. The standard of living in the country, which had stagnated for 30 years, has been growing rapidly and regularly since Morales came to power:
And at the same time, Bolivia has managed to significantly reduce inequalities:
Despite worrying signs that Morales is becoming more authoritarian, Bolivia has yet to experience anything like the devastation that has afflicted its ideological traveling companion to the north.
So, if it is not the price of oil, the external pressures or the inevitable tendencies of socialism, what made Venezuela sink? It is difficult to identify the exact political errors committed by Chavez and Maduro, but three failures are to be feared: macroeconomic mismanagement, nationalization of the industry and interference in the state oil company.
Hyperinflation is the worst scourge of Venezuela's economy:
This level of price increase makes it impossible to save money. Even though incomes tend to increase along with prices, unpredictability even when prices are multiplied by 20 or 40 makes it very difficult to plan for consumption. You may think that tomorrow's meal will cost only 10 million bolivars, but instead of 20 million, which means you could be hungry if you do not buy immediately. It is also very difficult for companies, even those owned by the state, to plan their investments when the price of these investments is very uncertain.
Meanwhile, hyperinflation has led the government, as one might expect, to impose price controls. These have created shortages of basic necessities and encouraged people to turn to the black market, which is much less efficient and corrupt.
The way in which hyperinflation is triggered is unclear: price controls, currency depreciation and budget deficits can help get things started, but it's very hard to stop once you've started . Venezuela should have witnessed this threat, its inflation rate increasing gradually year by year, but its leaders have only made the problem worse. Bolivia has managed to maintain very low inflation.
Another big mistake has been the large-scale nationalization of the industry and the expropriation of private property. Chavez was very attached to the nationalization of all kinds of enterprises belonging to foreign or national interests. This is a sure way to destroy the private sector – if local business owners and foreign investors do not think their property is safe, they will not invest and production will languish. This can lead to a spiral as the government is forced to nationalize the economy more and more as the private sector pulls out.
Morales, on the other hand, has been much more cautious with the nationalizations in Bolivia, limiting them mainly to the oil and gas industry and the electricity grid – centralized and stable industries where government ownership is common in the world whole.
Finally, Venezuelan leaders intervened in the smooth running of an industry already managed by the government – Petroleos de Venezuela SA, or PDVSA, the state-owned oil company. Previously, the company operated relatively independently, but Chavez mingled with his business by dismissing employees and replacing them with apparatchiks. maintain production. The unsurprising result is that Venezuelan oil investments have collapsed, oil infrastructure is collapsing and production is plummeting – all in the country with the largest proven reserves of oil gross in the world.
American socialists should take note – if there is a good way to do socialism, it is not. Instead of cautious policies like those of Bolivia, Venezuela's leaders have chosen to ignore the threat of hyperinflation, nationalize private companies throughout the economy, and undermine the smooth running of PDVSA. The result was predictable – one of the worst self-inflicted economic disasters of the century up to now.
To contact the author of this story: Noah Smith at firstname.lastname@example.org
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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Noah Smith is an editorialist of Bloomberg Opinion. He was an assistant professor of finance at Stony Brook University and blogged in Noahpinion.
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