Venezuela: The devolution to hopelessness and economic despair
As Senator Bernie Sanders’ incredibly under-rated campaign rose from the depths of irrelevance to a revolutionary crescendo, the term “democratic socialist” went from a pejorative to a term of endearment.
In a recent Gallup poll, 55 percent of Americans under 30 had a favourable view of socialism, as opposed to 24 percent of respondents 65 and older. Comparably, the under 30 group’s approval rating for capitalism was 57 percent, almost equal to socialism’s; those 65-plus had a 63 percent favourable opinion of capitalism.
When many young people think about capitalism, they envision inequity and greed while seeing socialism as a form of economic and social justice for the least privileged. Yet when older people—those who vividly remember the Cold War— think about capitalism, they envision free markets and bootstrapping, while seeing socialism as totalitarian and restricting human rights and freedoms.
Unfortunately, the idea of socialism as a repressive political ideology is not as much of an antique as many millennials may think—in fact, the Bolivarian Republic of Venezuela is a perfect example.
Venezuela, previously led by self-described democratic socialist Hugo Chávez, is arguably the most economically unstable nation on earth and a tragic example of how political mismanagement can result in almost uncontrollable civil unrest. This is the dismal tale of how a problematic regime took over Latin America’s most affluent nation in 1999 and ended up plunging the country so far into economic turmoil that, in 2016, hundreds of thousands of citizens flood neighbouring Colombia just to stand in lines for basic foods and medicines before returning home.
After the Cold War ended and the post-neo-liberalism period began—framed in Latin America as the “pink tide”—a successful presidential campaign by Chávez ushered socialism into the nation, largely supported by poor and working-class Venezuelans.
After Chávez’s first six years in office, Venezuela had the highest per capita GDP in Latin America, a declining poverty rate and no problems paying its bills. And while it looked great on the surface, there was a massive problem bubbling beneath: Chávez had taken the nation’s greatest strength, its oil, and made it the country’s biggest liability.
Venezuela, one of the world’s largest oil exporters, relies on oil for more than 95 percent of its revenue. In the early 2000s, when oil prices soared, the government saw an influx of capital the nation hadn’t witnessed in more than two decades.
Chávez, after leading a hostile takeover of Petroleos de Venezuela (the nation’s state-owned oil company), used this capital to overspend on social reform programs such as the Bolivarian missions, which included implementing antipoverty initiatives, building free clinics for the poor and creating housing subsidies.
For decades, Venezuela’s spending outpaced its revenue from oil and gas production, leading to high inflation, currency controls, a fractured relationship with private businesses and risk of default. No money was being put aside for a rainy day or used for increasing productivity. So when Venezuelan oil production dropped rapidly in 2011, that rainy day was upon them.
Initially, government spending dipped with revenues. However, around 2010, it surged. As Chávez grew sick and eventually died in 2013, being replaced by Nicolás Maduro, the country found itself at an estimated budget deficit of 24 percent of GDP. Poverty had set in—and with the desperation came crime and hopelessness.
According to the International Monetary Fund, Venezuela’s unemployment rate will jump from 17 percent to 21 percent next year. Its inflation rate will skyrocket from 481 percent to 1,642 percent. Overall, the IMF states, Venezuela is the worst-managed economy in the world. Ignoring the impact that the totalitarian socialist regime had on the country would be downright criminal.
Copyright © 2016 Transcontinental Media G.P. This article first appeared in the Fall 2016 edition of Corporate Risk Canada magazine