An Ideology Corrupted: The Relationship Between Socialism and Venezuela’s Fall

Ahead of his first speech to the United Nations General Assembly, Donald Trump held the international community in suspense as it waited to see how the nationalist rhetoric and policy proposals that defined the new American president’s campaign would translate onto the stage of international diplomacy. A man not known for his nuance, Trump quickly gave the international community an answer to its question, directly addressing North Korea, then Iran and Syria, with bluntness not often employed by diplomats that summarily captured all the headlines. In addition to these three countries, Trump also criticized one country much closer to the United States: Venezuela.

A nation embroiled in turmoil over the past few years as a slow turn towards authoritarianism has become a sprint and an unstable economy has become a collapsing one, Venezuela was singled out by the American president as an example not of “socialism that has been poorly implemented, but… socialism [that] has been faithfully implemented”. However, despite the rhetoric utilized and policies eventually implemented throughout the 2000s, the socialist nature of Hugo Chavez’s Bolivarian revolution is not the underlying cause of the current economic and political strife under his successor, Nicolas Maduro. Instead, domestic politics and a historic over-reliance on oil worked hand-in-hand to create conditions ripe for a populist from Sabaneta to stroll into Miraflores, the Venezuelan Presidential workplace, and do everything he could to stay there.

Originally used by native tribes to caulk canoes used to travel on Lake Maracaibo, the oil discovered in Venezuela’s Orinocco Belt in 1914 quickly became a national boon. Soon, the dictator-led nation became the world’s largest exporter of oil at the same time that European powers were drawing lines of demarcation in the Middle East that would eventually determine which countries controlled the oil soon to be discovered there. However, the residual effects of oil controlled by military dictator Juan Vicente Gomez on Venezuela’s economy were yet to be seen. Its effects on the general populace were only felt after three coups that ultimately resulted in the establishment of a democratic government in 1958. At a time when many countries in Latin America were beginning a cycle of violence between the introduction of left-leaning elements in government and the subsequent takeover of violent right-wing dictators, Venezuela had just witnessed the establishment of a democracy committed to stability and centrism per the Pact of Punto Fijo in 1958. This allowed the dominant political parties to pass the benefits of oil wealth on to the general populace through the introduction of generous subsidies, which created a burgeoning middle class.

In addition to the increasing presence of the middle class, a growing upper class was becoming incredibly wealthy from oil-related business. Rich enough to take weekend trips to Miami, these travel shoppers became known locally by their exclamations of wanting two of whatever they were pointing at. However, despite these apparent benefits, this manner of dealing with oil wealth was detrimental in the long run. Given a platform to rise up from the social programs funded by this oil money, this middle class would be very broad and would likely not store their wealth in any currency other than the bolivar, making them susceptible to any changes in its valuation; on the other hand, members of the new upper class would likely keep at least some of their money in a non-domestic currency given their international excursions. This slight difference would not only affect how any economic crisis would impact them, but also create a situation in which members of the middle class would be resentful of those above them after a financial crisis, as the system that had once benefited both groups would appear to only hurt the middle class when times were bad.

On February 18th, 1983, a drop in oil prices that caused this exact situation to occur not only exemplified how the current system of producing oil had created an imbalanced economic stratification, but also gave a prelude on how singular events related to oil could drastically affect politics. Combined with high levels of foreign debt, this drop in oil prices resulted in a significant devaluation of the bolivar, which caused many members of the middle class, who had just established themselves in the 60s and 70s, to take a financial hit and quickly drop back down into the lower classes. Seven years later, the proposal by then President Carlos Andres Perez to raise bus fares in response to an increase in gas prices even better exemplified the effect of oil on the political climate, as three days of rioting broke out in which over a thousand people were killed by the military. Not only did oil create a situation in which an entire class was resentful about how it had enriched others and ultimately hurt them, but oil then lit the flame, prompting eventual action on that injustice. In addition to causing these socioeconomic conditions, oil also became a key factor in supporting the practice that allowed populism to remain popular: socialism.

In November 1998, the month before Hugo Chavez would be elected the president of Venezuela, international oil prices bottomed out at $17.10, a level that they hadn’t reached since immediately after World War II in July 1946. Reflective of a steady decline in prices that began in 1980 — which included the sharper drops that caused occasional unrest in Venezuela — these incredibly low oil prices were a large part of why the pre-Chavez government had been so unpopular, as they had made the government’s generous social programs economically unsustainable. Crucially, however, this decline in oil prices preceded a sustained and incredibly large increase in oil prices. From that low of $17.10 in November 1998, oil prices rebounded to $47.63 by the same month two years later, and, despite a small reduction in late 2001, oil prices continued to rise precipitously through mid-2014, reaching a peak of $157.73 in 2008 right before the financial crash.

The estimated 1.2 trillion remaining barrels of oil gave the Chavez government an unprecedented influx of cash. In most nations whose economies are based primarily on oil, a portion of this wealth accrued when such prices are high is generally diverted from immediate spending to provide a safety net for when oil prices inevitably fall, with there generally being two ways in which this is done. In a nation like Saudi Arabia, significant sums of money are invested in foreign exchange reserves, giving the government access to foreign currency if the value of the domestic currency falls due to a drop in oil prices. The Norwegian government chooses to invests a portion of the oil wealth in diverse accounts called sovereign-wealth funds that limit the overall exposure of the economy to oil.

In order to decrease their risk, the Venezuelan government had initially invested in foreign exchange reserves. Beginning on March 31st, 2000, though, Chavez told then-national budget controller Guacaipuro Lameda that the government would begin to run a deficit. This ushered in an era in which the government went from contrasting the unfocused, fiscally-undisciplined governments that had preceded to exaggerating the absent-minded governing style of its predecessors. Furthermore, this decrease in efficiency accompanied an increase in the breadth and depth of social programs that many Venezuelans, especially the poorest among them that lived in mountainside slums overlooking Caracas, had come to enjoy. Between 2000 and 2013, this led to an increase in spending from 28% to 40% of the GDP. Just as importantly, this increase in spending outpaced the growth of the government’s foreign exchange reserves, to the point where the reserves would cover just three months of imports in 2013, as opposed to seven months’ worth just thirteen years earlier.

In this way though, socialism was more than an economic system that Hugo Chavez implemented which would eventually lead to the country’s economic downfall as soon as oil prices fell. Instead, it was a political tool that Chavez utilized to delegitimize and destroy the power of his political enemies. Whereas, when originally elected, he professed he did not prefer socialism over capitalism (even going so far as to ring the bell at the New York Stock Exchange, the center of Western capitalism), as soon as the original popular support for his movement, which was as high as 90 percent according to polls taken soon after he took office, diminished and technocrats from his government began to defect to the opposition, he began using socialist rhetoric to pitch his government as a representative for the working poor and the opposition as representative of the rich elites.

Herein lies the true nature of the current crisis in Venezuela: politics. Chavez used socialism as a political tool, thinking not of the benefit of the working poor to whom he professed care, but instead only of how to damage his political opponents’ standing with the public and their economic standing which gave them the ability to consistently publicly oppose him. In addition to socialism itself, Chavez’s stranglehold on the seat of power from which he implemented socialism was justified by capitalizing on his opposition’s political ineptitude, which was best exemplified by their inability to capture the momentum they had during the April 2002 coup. Having forced Chavez to flee to an island off the coast called La Orchila, the leaders of the strike were unable to stay unified and so failed in getting their message out that Chavez returned to Caracas just a day later to take back control of the government. Past these circumstances specific to Chavez’s reign, broader institutional issues in Venezuela’s politics played a role in allowing the growth of Chavez’s authoritarian government. In the case of so-called “enabling laws” (which had been present in Venezuela before Chavez but were expanded in the 1999 Constitution) that allowed the president to pass legislation without the approval of the National Assembly, these quirks enshrined in Venezuela’s political institutions seemed intended to give Chavez more power.

During his speech at the U.N., Mr. Trump was on the right track; socialism had played a definite role in the deterioration of the Venezuelan state, by relying on high oil prices and serving as a political tool to repress President Chavez’s political opponents. However, even though socialism is culpable as well, the political turmoil that let a leader with authoritarian tendencies be elected and the stability of oil prices that sustained his policies are the true underlying factors behind Venezuela’s current crisis.