Why Venezuela Needs to Completely Abandon Socialism

Most people, even though they are beginning to reject the word socialism today, still believe that somehow "something like that" will work because "we have oil"

In Venezuela, we remain politically anchored to one or another version of the unworkable socialism. (Photo: Flickr)


In Venezuela, since the early 20th century, politicians and intellectuals have believed that oil reserves along with socialism as the latest ideological import would be the keys to a promising future. The future arrived, and thanks to socialism, it is one of hyperinflationary scarcity in a poor, unproductive, violent society entrenched in political conflict. But we remain politically anchored to one or the other version of this impractical ideology: socialism. And many of our politicians and intellectuals still hope to make it work with the magic wand of the largest oil reserves on the planet. These reserves are of little use when industrial production capacity has reached historic lows, and their technological and managerial backwardness is the apparent result of socialist radicalization. Socialism led us to the growing and recurring scarcity of gasoline despite these vast reserves.

We have long found ourselves in this same labyrinth. Oil revenue was once enormous, allowing rulers to increase spending. In a democracy, this spending was directed towards what yielded the most votes: privileges for mercantilist minorities dependent on power, and pessimistically directed and widely politicized social spending for majorities also dependent on political power. The result was that both rulers and subjects were dependent on state-controlled oil revenue.

If the price of crude oil falls, spending should be cut, but public expenditure implies that there are those who vote and organize themselves to have political influence. It is easy to increase spending but almost impossible to lower it. The recurrent outcome was debt, deficit, devaluation, and inflation to cover the difference, a problem that the late Chavista leader called “la botija:” an oil pitcher. When oil prices are high, the pitcher is overflowing, and state-spending is lavish. When oil prices fall, we have an empty pitcher and still have to spend the same or even more in bolivars, but with fewer dollars. Despite exchange controls, price controls, rationing, and other planners’ fantasies, this only produces inflation and massive impoverishment.

That was the problem with the oil and the pitcher. Ludwig von Mises theorized the problem with socialism in the previous century when he explained that socialism as an economic system is unviable in the long term because it destroys the price system that transmits the information indispensable for coordinating a complex economy. The collapse of the radical socialist regimes of the past was delayed by the fact that they sold valuable raw materials to the capitalist world and imported – or stole – technology, capital goods, and management techniques. Nevertheless, they collapsed. Many still believe in versions of socialism that apparently work because they are mixed economies with an unproductive, socialist part that doesn’t work and a productive capitalist part that subsidizes it. When the socialist part gets too big, it will collapse and kill the other part. That is the reality, whether we like it or not.

And in Venezuela, our tragedy remains that our polarized political class, at best, has differences on crucial issues like representative democracy, the rule of law, and the division of powers. At worst, and most often, it is about the sharing of oil proceeds through corruption and more or less disguised political control. Corruption and socialism are inseparable, and together they destroy all traces of political control of power. And an accidental majority inadvertently voted for a tyrannical regime. It is impossible to emerge peacefully out of this tyranny even though that is precisely what the same majority wants. Almost all our politicians agree on the general idea of socialism as an economic model and oil as the key to implementing it in Venezuela. With varying degrees of room for the private sector, whether democratic or totalitarian, they aspire to rule over a socialist economy underpinned by oil, which, against all evidence, they still think will bring prosperity to Venezuela.

Our political crisis is defined by some clinging to power by whatever means possible, while others are showing more willingness than the ability to evict them as peacefully as possible. The biggest problem is that this crisis hovers over an economic disaster, and the heads of the warring factions offer no real solution. The economic problem is such that we have never seen one this severe. The pitcher isn’t empty anymore; it is broken. Just as broken is the industry that used to fill it. Revolutionary socialism has succeeded in reducing oil production capacity to an all-time low. After two decades of revolutionary socialism, the technological and managerial backwardness is such that the investments needed to really recover the oil industry in Venezuela would be gigantic.

No one is willing to bear the political cost of the sacrifices that would be required to correct the course. Everyone believes that whoever assumes power will lose it. And this may be true given the degree of destruction of the institutional fabric that a market economy requires, and its complete substitution of the vast network of populist mass consumer dependencies, ranging from privileged Bolivians to humble consumers of subsidized food bags, all amidst unproductiveness and inflation. The pitcher is broken, and we need the majority to understand and assume the sacrifices to put public finances in order, stop inflation, and transform the distribution of volatile and decreasing income to achieve a productive and diversified market economy.

But today, even though most people are beginning to reject the word socialism, they still believe that somehow “something like that” will work because “we have oil.” Socialism is unviable, so much so that it managed to reduce the Venezuelan oil industry – on which it intended to depend – to nothing, and oil will not magically make it viable. The truth is that even if we were to get out of the political trap we are in, we would still be at an economic and ideological dead end that would plunge us, sooner rather than later, into another political trap. And until we understand this and correct it, we will continue to sink into material and moral destruction.

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