The tragedy unfolding in Venezuela serves to prove a point long-settled by the failures of communist China, the USSR, Cambodia, Zimbabwe etc. We have known for some time that a mixture of massive government spending, nationalisation of business, politicised monetary policy and other government intrusions into the economic affairs of a country’s citizens achieves nothing other than the horror now being played out in the nation that possesses the largest proven reserves of oil.
There are people who deny that the sad state of affairs in Venezuela is due to the ideological turn of the government in that country. Others believe that the USA and other international forces are trying to undermine the government. This would seem a peculiar way to try and salvage the tatters of Bolivarianism - the revolution that was meant to build an inter-American alliance for nationalism and a state-led economy - since one of its aims was to rid Venezuela of such influence, therefore it has failed either way. The government engages in repression of its internal critics through arrests and other means, yet supposedly hungry Venezuelans are risking their livelihoods and lives because of the Americans rather than the devastation of their economy by Chavismo; the brand of socialism imposed on Venezuela by Hugo Chavez.
Along with the claim that nefarious foreign forces have conspired against Venezeuala, it is also claimed that Venezuela’s struggles are due to the Dutch disease: the inflow of foreign investment into oil which has led to a stronger currency and made Venezuelan exports less competitive. It is hard to find a less economically literate idea and one that contradicts the excuse given in the previous paragraph. US intervention would presumably include driving away foreign currency from Venezuela and the Bolivar is certainly doing anything but appreciating.
In fact, consumer prices rose by 800% in 2016 alone and the government has controlled foreign currency exchange since 2003. None of Venezuela’s economic problems can be attributed to foreign influence since the government has done virtually everything it can do to limit foreign political and economic influence in the country. Indeed, the more of this it has done, the poorer Venezuelans have become; the more socialism has become entrenched, the more the state has taken control.
The erosion of property rights in Venezuela includes both nationalisation and expropriation – these are key pillars of any socialist plan. Predictably this has led to Venezuelans enduring economic hardships that the government has tried to deal with through social spending and price controls and other interventions. Price controls in practice stop companies from being able to adjust to signals from the economy on approximate demand for goods and/or services which leads to the misallocation of investment and eventual shortages. This has happened in Venezuela. The big increases in social and other forms of government spending have provided more opportunities for the government and its cronies to feed from the taxpayer-funded debt trough.
This is demonstrated in Venezuela most acutely by the way the military has taken advantage of its central role in distributing government goodies. Besides delivering food to the regime’s supporters, it sells some of it on the black market while Venezuelans starve. This is not a problem unique to Venezuela’s military: increased government spending means more opportunities for corruption, no matter how noble the intention.
Killing the economy while engaging in inefficient government spending has saddled the country with high levels of debt, including the billions lent by China and Russia after Venezuela cut ties with the USA.
According to the Venezuela living conditions survey (ENCOVI) nearly 75% of the population has lost an average of at least 8.7 kg in weight. This means that while most countries with a relatively free market are worrying about obesity rates among the citizens, where people can buy all sorts of different foods at lower prices, socialist Venezuela has to contend with the opposite problem.
People are voting against socialism with their feet. Chavismo was supposed to create a South American paradise but millions of Venezuelans are fleeing to neighbouring countries that have managed to avoid the folly of Chavez and his grand plans. More than 1.5 million Venezuelans have left the country since Chavez took power in 1999, out of a population of 32 million.
Venezuela is the latest country that is learning the laws of economics the hard way. It does not have to be like this. We already have enough examples to know what works (free markets) and what does not (state control). Socialism must be the only ideology whose adherents, as soon as they are given power, suddenly lose the ability to implement what they had previously spoken -and written - authoritatively about. Does this mean the only conclusion we can reach is that socialism is a utopian farce that is in direct opposition to human nature?
It certainly seems so, apart from the many examples (all failures) throughout history and in the present, socialism simply does not work under any of the schools of economic thought that most practicing economists fall under. In particular, a state-controlled economy cannot set prices at a level that does not lead either to wastage or underutilisation of the good or service in question - only a free market can do that. Unfortunately for the people of Venezuela, their government has led them to their present condition, a condition that was largely predictable.
By Mpiyakhe Dhlamini, intern at the Free Market Foundation