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Gold Price Trend Forecast Summer 2019

What Makes Venezuela Different

Politics / Venezuela Jun 12, 2016 - 04:03 PM GMT

By: MISES

Politics

Ryan W. McMaken writes: Unlike other leftist South American regimes, the Venezuela regime has intentionally crushed even the middle and working classes.

The economic disaster in Venezuela has prompted many to take a look at the country and attempt to understand what it is that has made things so bad in Venezuela. 


It's not enough to say "socialism." After all, the political leadership in Ecuador and Bolivia right now are avowedly socialist, at least in rhetoric. Argentina has long been socialist in practice, but not even Argentina's repeated defaults and other messes brought the country anything like what is going on in Venezuela. Leftist Brazil remains something of an open question at this point. 

So what is it about Venezuela that has led the country to the brink of starvation while Bolivia remains relatively stable and without famine? After all, the Bolivian president, Evo Morales, a self-described disciple of Marx, gave Pope Francis a crucifix shaped like a hammer and sickle during a recent visit by the pontiff. 

The answer lies in the sheer volume of socialism practiced in Venezuela versus its South American neighbors. 

True Believers vs. Pragmatists 

Ever since Lenin, political leaders have known that "pure" socialism leads to starvation very quickly. Lenin had attempted to implement total control of the economy by the Soviet state when he came to power. However, after quickly realizing that this would destroy the economy, Lenin backed off and implemented the "New Economic Plan" which allowed for limited market activity, especially in food production. 

Every regime that attempts socialism quickly runs up against the calculation problem inherent in socialism. Without markets, how can we know what to produce, or for whom to produce it? What should goods and services cost? Without at least partial freedom for market prices to function, economies grind to a halt very quickly. 

Wisely (and fortunately for ordinary people), Lenin allowed his pragmatism as a politician to eclipse his devotion to Marxism. Similarly, after the mass starvation and social upheaval caused by Mao's hard-core Marxism in China, Deng Xiaoping turned to the pragmatism of "socialism with Chinese characteristics." It was, in other words, socialism-lite. 

As always occurs when socialism recedes, wealth increases. In the case of the Soviet Union, Lenin's limited markets never progressed beyond a very limited realm — thanks to Stalin's reassertion of centrally-planned economies. In post-Mao China, where markets were allowed to become widespread (although always heavily regulated) the Chinese economy flourished (relatively speaking) as farmers, merchants, and countless other small and medium-sized enterprises were allowed to function with relative freedom. 

In Venezuela under Hugo Chávez, and today under Nicolás Maduro, things have been moving in the opposite direction. 

Perhaps more than any other Latin American strongman in recent memory, Chávez was a "true believer" when it came to socialism, and he showed his ideological devotion with his war, not just on multinational corporations and other powerful corporate interests, but on everyone he considered to be "bourgeois." 

Antagonizing foreign corporations has long been politically popular in South America and has been a centerpiece of the administrations of Rafael Correa in Ecuador and Evo Morales in Bolivia. But both Correa and Morales tempered their political meddling in this respect with limited laissez-faire for domestic businesses. 

A War on Middle Class Retailers and Merchants 

Chávez, on the other hand, did not seem to discriminate when it came to crushing business and business people across the country. 

Simon Wilson contrasted the regime in Bolivia with the Venezuelan regime in 2015 for mises.org: 

[Morales's] tenure has undoubtedly been one of pragmatism. It is true that since 2005 he has expropriated just over twenty companies, but the level of expropriations in no way compares to that taking place in the culture of government impunity rife in Venezuela where 1,168 foreign and domestic companies were expropriated between 2002 and 2012. The infamous nationalization of foreign oil and gas fields [in Bolivia] is not one of complete state control, but is rather about gaining a controlling share of the profits made by foreign companies which can then be diverted into various social programs.

Morales was often content to leave small and medium-sized domestic businesses alone — and to allow for a large "informal" (i.e., unregulated) economy. When Morales ignores the informal economy, he is essentially creating "loopholes" in government regulation. And as Ludwig von Mises once observed, "Capitalism breathes through those loopholes."

The Venezuelan regime, on the other hand, has not been fond of loopholes. 

These contrasts extend to other socialist regimes in South America as well. In 2014, The Washington Post compared Ecuador's Rafael Correa with Chávez, reporting

Unlike Chávez and his epic battles with Venezuela’s private sector, Correa maintains generally strong ties with Ecuador’s business community and has presided over a sustained period of economic growth and low unemployment. He has kept the U.S. dollar as Ecuador’s currency.

Felipe Burbano, a political analyst in Quito, said Correa is a master of “state activism,” projecting his presidency — and government spending — into every corner of the country of 15 million by reaching out to rural voters, slum residents and others who were often ignored in the past. Correa has plowed the OPEC country’s oil revenue into new schools, health clinics and infrastructure projects, especially new highways, while cutting the poverty rate from 37 percent to 27 percent from 2007 to 2012, according to official data.

Arresting "Class Traitors" in Caracas 

In 2010, The Guardian reported how Chávez had declared a small-time butcher in Caracas to be a "class traitor" and a tool of international capitalists. The butcher, Omar Cedeño was arrested and put on trial for various "capitalist" crimes along with many other small business owners and retailers. 

But, as Venezuela is now seeing, when retailers are destroyed, there's no one left to sell, prepare, procure, and process food. 

In 2011, The Huffington Post reported on Chávez’s war on Jews, who are, it seems, also too "bourgeois" for Chávez's tastes. 

In 2012, Reuters reported on how Chávez was threatening "the rich" with "civil war" if they did not rally to his cause. Use of the term "rich" in Venezuela, of course, can often be similar to how it is used in the United States. It rarely refers to powerful billionaires in practice, but instead to mere upper middle-class people who make things, manage businesses, and keep the economy running. Destroying them is not a smart move for any political leader who wants to avoid mass starvation and a collapse in living standards. 

Naturally, for a true believer like Chávez, a war on a nation's industry does not stop with just butchers and middle-managers. It then proceeds to television stations, radio stations, newspapers, book sellers, and any other business that may be insufficiently "loyal" to the ruling regime. 

Not surprisingly, once all the retailers, media companies, managers, and all other independent business people are crushed, arrested, impoverished, or exiled, the economy ceases to function very well. 

This isn't to say that politicians like Correa and Morales are fans of freedom and free markets. That's unlikely. Both Correa and Morales appear to be traditional power brokers, robbing some groups to make gifts to other groups in order to curry favor with their political power base. Marxism serves a convenient advertising gimmick for the regime, but as with the Chinese state, the Ecuadorian and Bolivian states figured out the economic unworkability of Marxism long ago.

Unfortunately for the people of Bolivia and Ecuador, even this limited non-Marxist economic management by the state guarantees lackluster economic growth, and an endless cycle of corruption. A state that controls the economy also has the power to loot it. 

But, there is a big difference between redistributing wealth and destroying everyone who attempts to create some of it. In order to redistribute wealth, you have to make it first. This is a distinction that the leaders of the Venezuela regime (and their supporters) have apparently long been too foolish to understand. For this, the people of Venezuela are paying a heavy price. 

Ryan W. McMaken is the editor of Mises Daily and The Free MarketSend him mail. See Ryan McMaken's article archives.

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© 2015 Copyright Ryan McMaken - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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