Venezuela: How a Rich Country Falls

Why you Can’t Solve Complex Problems with Simple Solutions

Millions of Venezuelans protesting their abhorrent living conditions in 2017
“Huid del pais donde uno solo ejerce todos los poderes: es un pais de esclavos.”
“Flee the country where a lone man holds all power: it is a nation of slaves.”
- Simon Bolivar — Venezuelan Military General and liberator of Venezuela, Bolivia, Colombia, Ecuador, Peru and Panama from Spanish rule.

Venezuela has a rich and turbulent history. Like most countries in Latin America, its first meeting with the ‘old world’ was characterised by Spanish conquistadors exploiting its rich natural resources for the purpose of funding the fancies of a monarch half a world away.

Simon Bolivar, the legendary general that brought independence to the region may have freed Venezuela — and other northern Latin American countries — from Spanish rule, however, the exploitation of Venezuela’s natural resources for the sake of appeasing one man’s wants has remained almost constant throughout the twentieth and twenty-first centuries.

A country addicted to oil

Since the discovery of oil in 1914, the fate of Venezuela has rested almost entirely on this singular commodity. So important is this resource to the story of Venezuela that one could be forgiven for summarising the country’s previous 100 years of history as a struggle for its ownership and control. More than any left or right winged government, it is oil that has ruled the people of this naturally rich country and driven its leaders to make disastrous mistakes.

Plagued throughout the early twentieth century with dictators and military juntas, Venezuela enjoyed only a brief 40-year period of civilian democratic rule (from 1958 to 1998), during which time the country continued to struggle with the tumultuous ride that is the boom-and-bust cycle of the global oil market.

With oil came corruption and increasingly when the global price of oil went up the overall living standards of Venezuelans was good. However, when the prices dropped it seemed it was only the poor that ended up paying the price.

This inequality came to a breaking point throughout the mid-to-late 1980s when the price of oil collapsed dramatically, resulting in severe austerity measures and ultimately leading to the now infamous Caracazo, otherwise known as the ‘Caracas smash’ — a weeklong riot in Caracas (the capital of Venezuela) that killed thousands of people and brought about martial law.

Needless to say, the violence and instability of the decade leading up to the election of Hugo Chavez set the scene for his populist socialist message to resonate with the country’s poor and forgotten.

False Idol

Hugo Chavez

In 1998, Hugo Chavez came to power on a platform that promised revolution and change: no more poverty and no more corruption. He put forward a socialist agenda that would see mass nationalisation of Venezuela’s private sector and positioned the government — and himself — as the sole saviour of Venezuela’s poor.

Luckily for Chavez, the year of his election coincided with a boom in global oil prices, a boom that would bless his presidency until his death in 2013.

As was the case before Chavez, when oil prices were high the overall living standards of Venezuelans went up with it. What changed under Chavez was not Venezuela’s dependency on oil — without it, much of Chavez’s socialist programme would have been impossible — but rather how the profits from oil were distributed.

Chavez rightly criticized the governments that preceded his for ignoring the poor, the underprivileged and the working class in favour of entrenched corporate elites, however, what he failed to realise (or perhaps he did) was that all his presidency achieved was change who was being ignored rather than actually solve the systemic economic problems his country was facing.

To say that Chavez was a total disaster or brought about no positive change would be false. His entirely oil dependent socialist agenda did, for a brief moment in time, bring about socially positive change. Education improved and was accessible to more people, healthcare became much more accessible and indicators like child mortality rates and adult life expectancy began to head in the right direction.

What can’t be said of Chavez, however, is that he set his country up for long-term success and prosperity.

Exploitation by any other name

Rather than address the systemic problems facing his country, Chavez decided to solve complex problems with simple solutions.

Instead of setting up social and commercial infrastructure that would diversify the economy, curb Venezuela’s vicious dependency on oil, and empower the poor and underprivileged to take control of their own lives by providing them with opportunities for upward social mobility, Chavez established a clientelistic relationship between the poor and his government that would allow him to change the Venezuelan constitution in his favour while currying political favour with the third estate.

With a monopoly over the country’s wealth, Chavez was able to take advantage of the needs of the poor while dismantling the countries democratic checks and balances. With no other recourse other than to accept the patronage of the state, what level-headed individual of the working class would question the long-term implications of the removal of presidential term limits, the political takeover of the country’s Supreme Court, the introduction of rule by presidential decree, the dismantling of freedom of expression and freedom of the press, and the persecution of political opponents and critics.

This isn’t to say that Hugo Chavez didn’t have his detractors or that there wasn’t significant domestic push back against his presidency and administration — there was. It simply goes to show that if you keep enough members of one group of society sufficiently satisfied you can illiberally subvert a democracy to your will.

A group that’s benefiting from the status quo rarely stops to question the morality or intentions of their benefactor. Just as the elites were content to let the country’s oil reserves be exploited for their benefit under previous governments, Chavez convinced Venezuela’s poor that the continuation of this exploitation was justified as long as it was for theirs (and his) benefit.

And then came death

Hugo Chavez’s funeral in 2013

By the time of his death in March 2013, Chavez had turned Venezuela into an oil company masquerading as a country.

Throughout his presidency, Chavez had done everything in his power to discourage the development of domestic trade, agriculture, social infrastructure and fiscal responsibility. Everything from setting up price controls to cap the amount of money people paid for basic household goods — which in turn lead to the closing down of many businesses due to their inability to make any profits, which in turn resulted in severe shortages of these basic household goods — to taking control of the foreign currency exchange and thus setting up the perfect conditions for a black currency market to flourish.

Government-run oil was the only game in town, making up a staggering 90 percent plus of the country’s total exports and funding the entirety of Chavez’s socialist programme. A complete and total dependence on oil meant Venezuela had ignored every other sector in its economy. Crops were not being produced though there was fertile land for them to be grown on. Almost everything was imported.

The bust that followed the boom

Nicolas Maduro, the current president of Venezuela

With a hollowed-out economy and the price of oil dropping from USD111 per barrel in 2014 to USD27 per barrel in 2016, Chavez’s handpicked successor, Nicolas Maduro has done nothing to improve the systemic problems facing his country’s economy and everything to double down on his predecessors’ dictatorial tendencies.

It’s important to note that while Venezuela’s government has, over the past two decades, become increasingly autocratic, Nicolas Maduro first assumed power with a narrow electoral win over Henrique Capriles, with a platform promising a continuation of Hugo Chavez’s social programmes and benefits.

Since then, democratic conditions in the country have only gone from bad to worse. In a move to secure more power, in 2017, Maduro called for a change in the country’s constitution in order to take away legislative control from Venezuela’s National Assembly — the government body where laws are made — and vest all legislative and law-making powers with the Supreme Court. A court that is appointed by and directly accountable to the president.

Earlier this year, Maduro was once again narrowly elected to another six-year term, however, his election has been widely condemned both in Latin America, as well as by the international community, as illegitimate. With Maduro’s government controlling so much of Venezuelan industry it’s easy to see why the election results would be called into question. The government was even accused of intimidating voters by threatening to remove whatever little support the poor still received from the government if they did not vote for Maduro’s re-election.

Without the oil boom and charisma that shielded Venezuelans from the disastrous economic management of Chavez, Maduro has pushed through his presidency doubling down on economic error after economic error.

And the crisis keeps deepening

Scroll through the pages of any newspaper and you will see that Venezuela has been turned into a living hell. Malnutrition and hunger have taken over the country, hospitals lack basic supplies like antibiotics and soap, infant mortality has once again increased by a staggering 30 percent and diseases of a bygone era like diphtheria and malaria have returned to terrorise the poorest and weakest in the country.

The economic troubles facing the country are so great that Venezuelans themselves have been forced to act against their own interests. Reports have surfaced of citizens hoarding food and medicines whenever they can so they can either use them personally or sell them for whatever profits they can along the border with Colombia. While understandable, given the daily desperation with which most in the country live, the hoarding situation, in part, has only aggravated the crisis further.

And even though the United States and the European Union have been careful not to place sanctions on Venezuelan industry, choosing rather to target specific government officials, the international sanctions placed on Venezuela have limited the country’s ability to make progress in the way it structures and pays most of its international debts. This, no doubt, does more to keep Venezuela in a spiral of economic despair than encourage regime change or provide hope for a country that is struggling to keep itself fed.

With no other industry other than state-run oil sufficiently established, poverty is once again front and centre in the lives of Venezuelans, albeit this time affecting the many and the few. Violence too is on the rise and Caracas is now the second deadliest city in the world, with a homicide rate of 111.19 per 100,000 people.

Venezuela is going from bad to worse.

Simple solutions, complex problems

When Chavez came to power, Venezuela was in a sorry state of affairs (although far better off comparatively than it is today).

The poor had been consistently overlooked in favour of an entrenched elite and the country had been riding hard and fast on the roller-coaster that is the global oil market.

Whatever good intentions Chavez might have had coming into power and whatever short-term successes those intentions may have brought the poorest and most needy in society, Chavez’s fatal flaw — common among populists of both the right and the left — was to put forward simple solutions to incredibly complex problems.

This goes beyond a simple debate about the merits of socialism versus capitalism and speaks to the fact that no one solution can solve all a nation’s problems.

Chavez may have helped Venezuela’s poor by redirecting oil funds from the wealthy to the needy but he did nothing to actually stop these people from escaping the systemic cycle of poverty. At best he found a temporary solution that put clothes on their backs and food in their mouths; at worst he set up a society that was completely dependent on the government’s good graces, and in turn, the government’s success was entirely pegged on its ability to profitably export oil.

The poor, under Chavez, didn’t stop being poor, they just stopped being hungry when the going was good.

Establishing a successful and prosperous economy is hard, and there are simply far too many internal and external variables at play for one solution to hold the answer to all a nation’s problems.

Private industry is needed because private industry is the one that produces goods and services. It finds new and improved ways of production because it is constantly under the threat of competition and maintaining its profitability depends on the success and popularity of its products. This doesn’t mean that the market should be left to function by itself. Regulation — to varying degrees — is needed so that firms operate ethically and fairly.

Economic diversity too is needed so that a country is not relying on only one or a few sources of income. In order for economic diversity to flourish, governments need to set up the right incentives so that firms are able to take risks and reap the rewards when success is achieved.

Social programmes that help the poor, the underprivileged and the seriously disadvantaged should also be on offer, but they must be judged on their merits and efficiencies. Just because the government can provide something doesn’t mean that’s the best way to do it; just as the market might not always be the best way to provide something else.

Most importantly, people — especially those at the very bottom — need to be empowered to make their own choices and find their own way out of poverty. This isn’t to say that they have to go it alone or that government should let them fall through the cracks. That is cruel and grossly unfair. It does mean, however, that government cannot and should not become the only lifeline available to those at the bottom. There must be incentives for upward social mobility based on hard work, education and sound personal economic management. Teaching people how to obtain wealth and security rather than making them dependent on government programmes that they have very little say over is a much more viable way to end systemic poverty cycles than simply throwing endless amounts of money at the problem.

Finally, just as no one solution can solve the entirety of a country’s problems, neither can one man (or woman) alone hold all the nation’s power. Monopolies, be they in government or in the market, do nothing but bring about corruption and greed. Ensuring a country holds on to pluralistic democratic institutions is the only way to ensure the balance of power stays roughly in the middle, rather than leaning too far one way or the other.

As for what Venezuela can do today, it is difficult to imagine that Nicolas Maduro will do anything other than cause more damage and hardship. Add to this the strain put on the country through various international sanctions and the rising hoarder culture that has crept into small businesses trying to navigate the arid economic landscape, and you have a situation where neither public nor private enterprise is working effectively or productively to get the country back on the right track. For now, at least, it seems it’s just short-term fixes and simple solutions that are on offer to the people of Venezuela.