When Venezuela’s president, Hugo Chavez, died, the Left eagerly rushed to defend and praise him. Why? Well, let’s hear them out: “President Chavez cared deeply about the poor,” said Citizens Energy President Joe Kennedy. “We hope that as Venezuelans recall [Chavez's] positive legacies — especially the gains made for the poor and vulnerable,” said former president Jimmy Carter. “Poor people around the world have lost a champion,” said Hollywood actor Sean Penn. In short, Chavez is good–“[a] great hero” (in the words of Oliver Stone)–because he was concerned with the poor.
Yet, Chavez’s socialism has been a complete and utter disaster. Especially for the poor.
Chavez’s policies have undermined the country’s industrial sector. Thousands of businesses have disappeared and hundreds of thousands of jobs have been lost as a result. Labor participation has gone down from 52% to 46%. And with an average unemployment rate of 11%, the country has been suffering from mass unemployment ever since 1998. As a result of the Venezuela’s shrinking industrial base, the country is more dependent on imports than ever. In the past, the country produced other things of value besides oil. Not anymore. Now it’s virtually all the country is producing. Thus, oil constitutes almost 100% of its exports.
To pay for Chavez’s welfare programs, the government has resorted to money printing, i.e., inflation. And as a result, the cost of living has gone up by an average of 24% per year. Since 1999 “the cost of the dollar in bolívar terms has risen more than tenfold” (“The not-so-strong bolívar”, 2013/2/11, The Economist). Considering that the country is importing 70% of the food it needs, that translates into a substantial reduction of the Venezuelan standard of living. Real wages have dropped by 40% since 2000. Venezuela is actually the only country in the region with declining real wages. (“The Twisted Economics of Twenty-First-Century Socialism”, Foreign Affairs.)
In response to the very inflation caused by the government printing too much money, Chavez imposed price controls. The result? Now “shortages of staples like milk, meat and toilet paper are a chronic part of life” (“With Venezuelan Food Shortages, Some Blame Price Controls”, 2012/04/20, New York Times). So, although you may be earning more than $1 per day, you’re obviously not better off if your money is not worth anything and there’s nothing to buy.
Chavez has also resorted to treating state-owned companies as cash cows, plundering them for all of their worth. Venezuela’s state-owned oil company, PDSVA, generates almost 50% of the government’s revenues. As a result of this unsustainable capital consumption, the PDSVA is now producing 25% less oil than it did in 1998. In his hunt for new companies to loot, Chavez has expropriated 1000 companies, including hundreds of foreign-owned companies. Since then the capital flight from Venezuela has only intensified and private investments have dropped by nearly 80% between 2007-2010.
Chavez’s war on capitalists has led to a severe shortage of capital–the very capital necessary to maintain the country’s infrastructure and industrial production. We are already witnessing how the country is literally falling apart due to the lack of capital: “Roads are crumbling, bridges falling, refineries exploding. A wheezing power grid condemns much of the country to rolling blackouts.” (“Hugo Chávez: a strongman’s last stand”, 2012/10/2, The Guardian.) Unless this trend reverses, life in Venezuela will, of course, only continue to deteriorate.
The sole reason the economy hasn’t yet collapsed under the weight of Chavez’s “21st-century socialism”, is because the country has been propped up by an international commodity boom which drove up oil prices from $9 to $100. That’s right: we, the great oil consumers in the growing capitalistic economies, have in effect been subsidising Chavez’s regime; it’s capitalism which has kept socialist Venezuela floating.
This cannot go on indefinitely. Chavez has left the economy in ruins by consuming the nation’s savings today, leaving the country with no means of producing (or consuming) tomorrow. What does the future hold for Venezuela? It doesn’t look too bright. Today the country can barely feed itself despite its oil reserves. What can we, then, expect the day after tomorrow, when Venezuela’s oil industry falls apart?