The Problem of Venezuela (and Latin America) is Socialism

The lesson here is that socialism is no longer revolutionary. Today, socialism comes in a set of progressive reforms aimed at reducing economic and political liberties.

1,088
The recent chaos is the result of increasing socialist policies, especially hyperinflation, combined with declining oil revenues.
(Image: EFE)

By Harold Vásquez and Osmel Brito *

 

The economic, political and social disaster of Venezuela is the result of leading a nation to socialism. There are two ways to achieve this goal: the revolution, proposed by Karl Marx; and the progressivism, introduced by the Fabians—an English school that promotes the transition from capitalism to socialism-through the gradual and reformist effort of democracies. The failed experiments in the Soviet Union, Communist China, and Cambodia discredited the revolutionary option. These tragedies caused the deaths of almost 100 million people—more than the combined deaths from the First and Second World Wars. However, instead of rethinking their ideas, theorists and political promoters of socialism sought a new approach based on the seizure of power through democratic means to implement a progressive agenda that lead their nations to the socialist utopia. With this idea, many political movements have been rising in America at the end of the twenty-century, including the democratic socialism, the socialism of the XXI century and, recently, the “millennial” socialism.

Subscribe free to our daily newsletter

The concept of socialism refers to the common ownership of the means of production with the sole purpose of use and not the generation of profits. Nowadays, with some exceptions, there are no totalitarian socialist regimes, but instead, countries lie on a continuous scale that marks in the extremes totalitarian socialism in one side, and anarchist capitalism on the other, depending on the characteristics of their political and economic systems. This distinction, however, is not evident and many analysts argue erroneously about successful and unsuccessful cases of socialism.

For example, some political and economic analysts argue that a number of Latin American countries have embraced socialist projects and, with the exception of Nicaragua and Venezuela, were able to prosper, neglecting that these projects presented some of the chronic symptoms currently exacerbated in Venezuela: corruption, inflation, and uncontrolled public spending. The increase in commodity prices explains the apparent success of socialism in countries such as Ecuador and Brazil; once this boom ended, the socialist “success” was over. Similarly, despite having nationalized dozens of companies since 2006—at a cost that exceeds 3,5% of GDP—Bolivia is referred as another case of socialist success, in which future potential economic problems might be related to macroeconomic conditions. However, the expansion in government spending still does not cause devaluation pressures in Bolivia because the Central Bank fixed the exchange rate at the expense of its dollar reserves, which have dropped by almost 50% in the last four years.

But let’s focus this analysis on Venezuela. The Communist Party of Venezuela (PCV), founded in 1931, is the alma mater of Venezuela’s politicians. Over the years, as the leaders abandoned communism and embraced democratic socialism, they create a large number of parties that conform today’s Venezuelan political system. The political discourse of these emerging leaders always reflected the conviction that a capitalist market economy is only a transitory stage towards some form of socialism.

Venezuela is a case study that went from being an economic success to a humanitarian disaster. Since the emergence of the oil industry, around the 1920s, until the late 1950s, Venezuela’s economy was able to combine economic growth with declining poverty rates, making the country a regional center for immigration settlements. In 1975, the socialist democratic government of Carlos Andrés Pérez nationalized the iron and oil industries. Then, geopolitical events caused the price of oil to increase dramatically, producing excessive revenues that tipped the balance of power in society in favor of the Government. Until 1998, despite the existence of a market economy, government actions aim to reduce economic freedom were widely implemented, including exchange controls, currency devaluation, monetary inflation, price and wage controls, barriers to trade, forced redistribution of wealth, and highly progressive taxes — all these policies accompanied by the typical Third World’s anti-imperialist rhetoric.

The arrival of Hugo Chávez to power, in 1998, exacerbated socialist policies, as the government was devoted to political control. Starting in 2003, a set of confiscatory laws created political unrest, which resulted in increasing government interventions. Again, with the increase of international oil prices, the government raised public spending, specifically the so-called “social” spending through monetary transfers that appeared to reduce poverty. Within this strategy, the regime increased its power by giving Russia and China blocks of oil reserves in exchange for loans for present consumption, leaving the country as a simple pawn within the global geopolitics. The recent chaos is the result of increasing socialist policies, especially hyperinflation, combined with declining oil revenues. John M. Keynes wrote that Lenin “declared that the best way to destroy the capitalist system was by corrupting money. Through a process of continuous inflation, governments can confiscate, secretly and stealthily, an important part of the wealth of their citizens.”

After some trips to Venezuela, I witnessed this economic crisis. I was amazed to listen to young professionals argue that Venezuela would never become another Cuba, while supermarkets were empty and their homes lacked toilet paper. Likewise, my colleague Osmel had to move his family to the Dominican Republic as a result, and start a new life as a professor and entrepreneur.

The lesson here is that socialism is no longer revolutionary. Today, socialism comes in a set of progressive reforms aimed at reducing economic and political liberties, which is not possible without harming minorities. Our conclusion is straightforward. Yes, socialism was adopted in Venezuela—as well as many countries in Latin America—and socialism is the cause of the current crisis. But, like the devil, the success of socialism is based on its ability to make people believe that it has never been implemented.

 

 

* Harold Vásquez is a research professor of Economics at the Instituto Tecnológico de Santo Domingo (INTEC) and Osmal Brito is a professor of Economics at Pontificia Universidad Católica Madre y Maestra.

Subscribe free to our daily newsletter
Sign up here to get the latest news, updates and special reports delivered directly to your inbox.
You can unsubscribe at any time