“Venezuela has changed forever.”
Hugo Chavez (1954-2013)
President of Venezuela 1999-2013
As Mr. Chavez said, Venezuela has changed – from the richest country in South America to one of the poorest, from an economy based on abundant natural resources, including the largest oil reserves in the world[1], to one where people are starving, from a free country to a dictatorship.
Unlike many tragedies, the one in Venezuela is man-made. No natural storm or Biblical plague visited Venezuela. It was men – two in particular – who, in the pursuit of personal power and under the guise of socialism, destroyed the country and rendered its people impoverished. Venezuela, with a population of 31.2 million, is in north-eastern South America, with 1700 miles of coastline on the Caribbean and the Atlantic. Just north of the equator, it has a topography that ranges from rain forests in the Amazon basin to alpine glaciers in the Andes. The lushness of its forests prompted novelist Romulo Gallegos to write poetically of “the golden spring of the araguaneyes.” Venezuela is ranked 7th in the world, in number of plants – and now ranked near the bottom in terms of freedoms and wealth.
Besides oil, Venezuela had been an exporter of coffee, cocoa and manufactured products. Last year, the Frazier Institute’s “Economic Freedom of the world: 2016 Annual Report” ranked it dead last, as its citizens struggled to gain necessities, like food, water and even toilet paper. It has the weakest property rights in the world, according to the Heritage Foundation. How does Nicolas Maduro reward his loyalists, with oil revenues down more than 60% from their peak? Amanda Taub and Max Fisher of the New York Times recently suggested: “…the most valuable resource in Venezuela is access to favorable exchange rates. By leveraging official government rates, which value the bolivar considerably higher than the unofficial rate, someone with the proper connections can generate a small fortune out of thin air.”
There are those who blame Venezuela’s troubles on falling oil prices, or on a drought that effected hydro-electric power production, but other countries have dealt with such problems. Those industries, and many others, including agriculture and banking, were expropriated and nationalized by Chavez and his successor Mr. Maduro, which meant by-passing the inherent fairness and equality embedded in free markets.
It has been socialism that has brought this country to its knees – the arrogant belief that government can assume the means of production, dictate distribution methods and affix prices better than markets. The consequence of its failure can be seen in the starving faces of children and in the desperate countenances of demonstrators. Last year, CNBC reported that the economy shrank by 18.6 percent, with inflation at 800 percent. Official unemployment rates are around 7%, but unofficially rates are between 18 and 25 percent. Real numbers are certainly higher, probably much higher, with no relief on the horizon.
Margaret Thatcher warned: “The problem with socialism is that eventually you run out of other people’s money.” Keep in mind, politics is about power. Governments control enormous budgets. According to the 2017 Index of Economic Freedom, Venezuela’s government accounted for 40.2% of GDP over the past three years, with deficits averaging 16.1% of GDP. Public debt is equivalent of 48.8% of GDP.