There is no shortage of media coverage of the economic crisis that Venezuela is currently facing. Once a regional powerhouse, Venezuela is a lurid case study of the failure of socialist economic policies.
One needn’t look any further than the results of the numerous price and currency controls implemented by the late Hugo Chávez, and current President Nicolás Maduro, to comprehend Venezuela’s dire situation.
Scarcity of basic goods, such as toilet paper and diapers, a shortage of plane tickets for those who dare to flee the country, and a national currency that is barely worth more than monopoly money are the fixtures of Venezuela’s 21st-century socialist economy.
A few months back, Henrique Capriles Radonski, the leader of the Democratic Unity Roundtable (MUD), came out with an economic-emergency plan that aims to weather the economic storm that is ravaging Venezuela. This proposal consists of increases in public spending, wage hikes, and the return of various expropriated businesses to their owners.
Despite the good intentions of these policies, they do not address the key problem with Venezuela’s economy: the country’s current crisis is the result of government intervention in the economy in the first place.
Capriles’s economic plan reveals another harsh reality of present-day Venezuelan politics: the majority of the MUD opposition is made up of a coalition of social-democratic parties that effectively want to go back to the pre-Chávez political order.
This nostalgic political vision held by the MUD is based on the faulty premise of “good socialism.” The “good socialism” that many of these figures hold dear is arguably what created the conditions for the more radical form of socialism that Venezuela currently faces.
Venezuela has seen better days, especially from the 1940s to the 1990s, but this was not the result of “good” socialism. While the natural abundance of oil did play a substantial role in Venezuela’s economic development, many overlook other factors in how it came to be the economy with the fourth highest GDP by 1950.
Thanks to flexible immigration policies, a willingness to open the country to trade, and an institutional framework that protected property rights, Venezuela was able to establish itself as a vanguard country in the region.
However, this economic structure was built on a house of cards. Taking advantage of the tax revenues generated from this period of economic prosperity, Venezuelan governments during the 1960s to 1990s squandered it all away with massive spending sprees.
These governments also engaged in numerous interventionist policies, such as the implementation of currency and import controls, the creation of state-owned companies, and raising taxes. To top it off, Venezuela nationalized its oil industry in 1975 under the assumption that its oil bonanza would last indefinitely.
The results of these policies consisted of increases in external debt, ever-growing inflation, and an economy that was gradually becoming more closed off to international commerce and competition. To no surprise, Venezuela experienced a measly average growth rate of -0.13 percent in per capita GDP from 1960 to 1997.
At that time, the Venezuelan government was effectively squandering all of the wealth generated by the productive sector from previous decades. In short, the state grew richer, while society grew poorer.
The party came to a crashing halt after Hugo Chávez rose to power via democratic means in 1998. The rest was history.
Venezuelan opposition leaders would be wise to read up on their own history. Going back to the “good socialism” of yesteryear will only repeat the same vicious cycle of false prosperity and subsequent misery. As Austrian economist Friedrich Hayek noted in his famous essay “The Use of Knowledge in Society,” no central-planning board, no matter how well intentioned it is, can successfully run an economy.
The story of Latin America in general is one rife with demagoguery and populist leaders that believe they can defy the basic laws of economics. This penchant for turning to demagogic leaders has been ingrained in the region’s political DNA since the Latin American wars of independence.
Decade after decade has been filled with Latin American countries that stand out economically, and then gradually revert back to mediocrity and malaise.
There is no such thing as good socialism. An economy with socialist-lite policies will face economic reality sooner or later. It either gets its act together, or it will face an inevitable economic collapse. There is no reason to repeat economic policies that have repeatedly failed throughout the 20th century.
If there is any “good” system to be emulated, it’s classical liberalism. Let’s hope that Venezuela can learn from its past mistakes and break free from the chains of misery by adopting free markets for a change.