The source of Venezuela’s economic breakdown is socialism, not corruption
Hugo Chávez’s idol, Simón Bolívar, admired American democracy
Official attempts at price fixing in Venezuela stoked devastating inflation
For the purposes of our analysis here, there probably is no better example of contemporary socialism, its effects, and its pathologies than Venezuela under the government of Hugo Chávez, whose United Socialist Party of Venezuela has 5.7 million members, making it the largest socialist party in the Western Hemisphere. Most pertinent to Americans, Venezuela shows what happens when socialism is appended to a large country with a complex economy and society. Venezuela is neither a homogeneous northern European ethno-state insulated by its wealth and generations of accumulated social capital, nor a Third World hellhole ravaged by endless civil war, an unbroken history of autocratic, single-party rule, or the doctrinaire application of ultraorthodox Marxism-Leninism.
Venezuela has something like the kind of socialism that American socialists intend and admire. Its socialist regime came to power through democratic means (means which it has since sought to limit, lest they be used to restrict the power of the socialist regime, leaning toward, if not quite achieving, the usual socialist model of democracy: “one man, one vote, one time”).
Moreover, the regime’s centralization of power is of the sort that is essential under socialism; the state has tightened its control of petroleum and other vital industries as necessary for implementing the political discipline required to carry out President Chávez’s central-planning agenda. Chávez’s crackdown on opposition media can even be dismissed as a small, regrettable excess in an otherwise democratic socialist agenda—even though such censorship is a routine part of socialist regimes, which cannot bear much scrutiny and will not bear much opposition. (It’s no accident that one of the most dangerous occupations in Cuba is that of librarian.)
Unlike many of the socialist regimes that took power in Third World countries with scanty resources, the Chávez regime took over a relatively prosperous, stable, and civil country that had relatively strong institutions. In the early twentieth century, Venezuela had the largest economy in Latin America, one that was turbocharged by the discovery of massive oil reserves. But the influx of petrodollars turned out to be, as it often is, a mixed blessing. The government spent and borrowed lavishly, operating on the theory that oil prices would continue to rise forever. (You know, like housing prices in the United States.) But in the 1980s, oil prices collapsed—and the Venezuelan economy collapsed along with them.
What followed was the familiar pattern of a national fiscal crisis. Given a choice between formally defaulting on its debts or informally defaulting on them by devaluing its currency and paying off its creditors with debased money, Venezuela chose the latter. Inflation predictably skyrocketed, and real standards of living for Venezuelans fell dramatically. A relatively affluent country became a relatively poor one almost overnight, thanks to failed government economic planning.
The crisis created an opening for the former paratrooper Hugo Chávez, who had been jailed after attempting to stage a coup d’etat in 1992. The nouveau pauvre Venezuelans, feeling the sting of their economic setback, were ready for some hope and change, and Chávez promised it to them. Specifically, he promised to plunder the country’s oil wealth on behalf of the lower classes. When he was elected president in 1998, tightening the state’s grip on the oil and energy industries was at the top of his agenda.
He proceeded with a fury—but not without opposition. Angered by corruption and vote fraud in Chávez’s re-election campaign and in an ensuing constitutional referendum, the opposition coalesced into a unified group called Coordinadora Democrática, which brought the Fedecamaras, the Venezuelan version of the chamber of commerce, together with the non-Chávezista labor unions represented by the Confederacion de Trabajadores de Venezuela. There were strikes and protests, but the opposition only made Chávez more militant. In 2000 he forced through the “ley habiltante,” legislation that invested him with dictatorial powers—literally dictatorial powers, the ability to rule by decree—for one year. Thus aggrandized, Chávez decreed forty-nine additional laws that established his socialist vision as the law of the land for Venezuela.
The backlash against Chávez’s dictatorial ambitions was severe and sustained. As the strikes and protests increased in intensity, in 2002 a group of military officers staged an abortive coup, charging that Chávez had no intention of truly surrendering the dictatorial powers he so plainly relished. Chávez survived the coup, but in December Coordinadora Democrática staged a crippling strike that shut down the oil industry. Managers at the major state-run oil company, Petróleos de Venezuela (PDVSA), walked off the job, and the captain of an oil tanker dropped anchor in the main shipping channel at Lake Maracaibo, refusing to budge and shutting down oil shipping.
The strikers were demanding that Chávez either leave office or amend the dictatorial decrees that established his socialist framework. Chávez refused, and within a few months Venezuela’s oil production had fallen nearly 40 percent. Throughout the oil-rich country, motorists were left stranded without gasoline. Where fuel was available, drivers had to wait in serpentine lines encircling gas stations for hours before they could fill up. Domestic air travel shut down.
“Late last year, 16 U.S. congressmen voiced their approval for Venezuelan president Hugo Chavez. Representatives Barney Frank, John Conyers, Chaka Fattah, Jan Schakowsky, Jose Serrano, and others complained in a letter to President Bush that the United States was not adequately protecting Chavez against a groundswell of internal opposition to his increasingly authoritarian rule—an upsurge that might lead to his ouster. Elected to power in 1998, Lt. Col. Chavez has hijacked democracy in Venezuela and is openly moving the country toward totalitarianism. Beyond Venezuela’s borders, he celebrates, protects, and does business with terrorists.”
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Weekly Standard, 2003
In spite of assistance from sympathetic governments in the region, the Venezuelan economy imploded. Not only was gasoline scarce, but soon food and other basic necessities were in short supply. The economy contracted 27 percent during the first quarter of 2003 and unemployment topped 20 percent. Conditions grew so bad that even the merchants and shopkeepers, normally the most apolitical of businessmen, went on strike against Chávez—at Christmas, no less, adopting the slogan, “2002 Without Christmas, 2003 Without Chávez.”
The strikers had energy, but Chávez had the army, the police, and the tax authorities, the last of which he used to seize control of the media—television networks critical of Chávez suddenly found themselves facing huge assessments for back taxes. Eventually, the strike was crushed, and the main leaders of Coordinadora Democrática—the presidents of Fedecamaras and the Confederacion de Trabajadores de Venezuela—were arrested.
Crucially, after the strike was suppressed, some 18,000 PDVSA workers were fired, leaving Chávez with more direct control of the company and its oil revenues. This was a development from which PDVSA has never really recovered. Chávez does not know or care much about running an oil company. What he cares about is having a goose that lays golden eggs from which he can whip up his socialist omelet. Overall Venezuelan oil production has never returned to pre-strike levels. As analyst Peter DeShazo put it in a 2007 report for the Center for Strategic and International Studies,
Venezuela’s hydrocarbons sector is shaped by Chávez’s ideological vision of a Bolivarian revolution and his strategy to put that in motion. That vision implies a politicized PDVSA with a social mandate that supersedes the production mandate. Resource nationalism drives the process of rolling back the effects of the aperture of the sector during the 1990s, when private investment was encouraged, to put in place a regime of state control.
In the wake of the 2002–2003 strike/lockout and declining private and PDVSA investment, oil production in Venezuela has fallen from over 3 million barrels per day (mbd) to a figure of around 2.4 mbd (according to OPEC estimates) in 2007. PDVSA official production figures are 3.3 mbd.
While PDVSA’s business plans forecast strong growth in production to over 5 mbd by 2010, current levels of investment preclude any major rise in production.1
THE PLAN called for 5 million barrels per day in 2010. Venezuela’s actual oil production in 2010 was less than half that figure, 2.3 million barrels per day—or 100,000 barrels a day less than it was in 2007. Other oil companies have been brought under stricter state control as well, as have dozens and dozens of smaller oil-services firms that had business with PDVSA.
The fundamental problem, of course, is that Chávez wants the golden eggs, but he does not want to feed the goose. (In some cases, those eggs are literally golden; Chávez has nationalized the country’s major gold-mining operations.) A large oil operation will continue to produce millions of barrels of oil per day for a long time, even it if is allowed to fall into disorder and disrepair—which is precisely what is happening to PDVSA. With basically no new investment coming from foreign sources—which are afraid to do business with the capricious and nationalization-happy Chávez—or from domestic sources—which are completely under the thumb of Chávez, who would rather use the money to reward his political supporters—PDVSA is foundering.
As is the wider Venezuelan economy.
The problem, apologists for socialism invariably argue, is that these state-run enterprises are not run like proper businesses; either they are corrupt, too highly politicized, or incompetently managed. Of course, all that is true. Never mind, for the moment, that the best way to ensure that these enterprises act like businesses is to forgo converting them from private enterprises into public ones; one must keep in mind that solid business practices alone cannot impart to a socialist enterprise the discipline and market-generated knowledge enjoyed by capitalist businesses. Mises commented at length on the futility of socialist enterprises’ attempts to adopt free-market business techniques such as improving technology, reducing duplication, and instituting business training:
It is not difficult to expose the fallacies inherent in such notions. The attributes of the business man cannot be divorced from the position of the entrepreneur in the capitalist order. “Business” is not in itself a quality innate in a person; only the qualities of mind and character essential to a business man can be inborn. Still less is it an accomplishment which can be acquired by study, though the knowledge and the accomplishments needed by a business man can be taught and learned. A man does not become a business man by passing some years in commercial training or in a commercial institute, nor by a knowledge of book-keeping and the jargon of commerce, nor by a skill in languages and typing and shorthand. These are things which the clerk requires. But the clerk is not a business man, even though in ordinary speech he may be called a “trained business man.”
When these obvious truths became clear in the end the experiment was tried of making entrepreneurs, who had worked successfully for many years, the managers of public enterprises. The result was lamentable. They did no better than the others; furthermore they lacked the sense for formal routine which distinguishes the life-long official. The reason was obvious. An entrepreneur deprived of his characteristic role in economic life ceases to be a business man.2
There is corruption, inefficiency, and incompetence in every socialist enterprise, of course, just as there is corruption, inefficiency, and incompetence in a fair number of capitalist enterprises as well. (Enron? AIG? Lehman Bros? Should we keep going?) The critical difference is this: inefficient or incompetent capitalist enterprises eventually fail. Corrupt traders can be banned from the markets, corrupt executives put in jail. Investors will mercilessly punish venality and stupidity, and they have strong incentives to uncover it.
But here’s the kicker: even without corruption, incompetence, or inefficiency, a socialist enterprise will still malfunction, because its managers cannot have access to the sort of information provided by price signals in the private marketplace. That, and not the petty corruption of Hugo Chávez, is what ails Venezuela’s “social” sector.
Aside from the oil industry, the Chávez regime seized control of much of the rest of the economy as well. Chávez in effect nationalized the Venezuelan electricity industry when he pried ownership of the country’s largest private generator from a U.S. company, AES Corp. (He paid them $740 million for it—not an entirely unreasonable price, most analysts thought, but it was a take-it-or-leave-it proposition, or, perhaps more accurate, a take-it-or-I’ll-take-it-anyway proposition.) Likewise, Chávez redirected great streams of Venezuelan oil revenue to nationalize other firms, for example, acquiring control of the cement industry by buying out private operations run by Mexican, Swiss, and French companies.
The cement nationalizations were necessary under Chávez’s economic plan; after the Venezuelan government began imposing price controls, cement producers found they could sell their product more profitably abroad than in Venezuela’s increasingly state-smothered markets. Rather than concede the reality that his plan called for paying unrealistically low prices for cement (prices below market-clearing world prices), Chávez simply seized the industry by leveraging the one commodity he was happy to see sold at its full market value: Venezuelan oil.
Similar stories unfolded in the telecoms, steel, paper, and food-processing industries. Several large agricultural operations also were nationalized, including Venezuela’s major coffee producers, and large swathes of land were expropriated from other private concerns. A food-processing facility owned by the U.S. firm Cargill, which produces rice in Venezuela, was seized when the firm reduced production in response to government price controls. This policy had the predictable result that formerly productive farmland today sits fallow or marginalized by government mismanagement, while Venezuelan domestic food production has tanked. When ceramics, steel, and plumbing-supply operations had problems with their labor unions, Chávez “solved” the problem by nationalizing the businesses.
Organized labor, of course, is one of the great sources of Chávez’s power, and if he didn’t quite nationalize the Venezuelan labor unions, he certainly has tried to Chávezize them. He had a law passed that empowers the government to monitor internal union elections, a move criticized by labor leaders around the world as undue government interference in internal union matters. When Chávez was unable to subdue Venezuela’s version of the AFL-CIO, the Confederacion de Trabajadores de Venezuela, which had resisted some of his more authoritarian innovations, Chávez simply set up a rival umbrella union of his own, the Union Nacional de Trabajadores. As Chávez acolytes have infiltrated individual unions, those unions have switched their affiliation from the anti-Chávez ACT to the chávista UNT. Chávez has rewarded them by making the relatively small newcomer UNT Venezuela’s representative to international labor conferences.
When he was asked about possible plans to nationalize German industry, the leader of the German National Socialist Workers’ Party, Adolf Hitler, replied, “Why should I nationalize them? I shall nationalize the people.”3 Chávez has made every effort to nationalize his people, too. Why merely nationalize industry when you can nationalize reality? So Chávez habitually rigs the numbers in his favor. When the Venezuelan National Statistics Institute released figures showing that poverty was on the rise under Chávez’s government, climbing as high as 53 percent in 2004 in spite of surging oil revenues, the president simply called for a different measurement of poverty, one that conveniently showed a much lower poverty rate. When the data have suggested that unemployment is rising, the Chávez regime has finessed the way it calculates unemployment.
In this, Chávez is replicating an old practice perfected by his mentor, Fidel Castro, whose impressive—and utterly fictitious—statistics documenting Cuba’s literacy and childhood-health achievements have been endlessly trumpeted by those seeking to socialize American healthcare. (Indeed, the American left is so committed to the myth of Cuba’s socialist success—see, for example, the paean to Cuban healthcare in Michael Moore’s anti-capitalism “documentary” Sicko—that even Castro’s recent confession that “the Cuban model doesn’t even work for us anymore”4 has hardly dampened their enthusiasm.)
Note that these are relatively petty acts of dishonesty and data-massaging. Anybody can lie with statistics, and most politicians do. But there is a certain thoroughness to socialism that often is lacking in other kinds of systems, even in highly centralized and authoritarian ones. Because socialism relies on the mechanisms of the state to enforce the dictates of its central planners, and because those dictates are marketed as the efforts of the best and the brightest to establish a rational order on behalf of the people—who cannot do so themselves—it is politically necessary that the state and its leaders (in many socialist systems, THE LEADER) be strongly identified, in an almost religious way, with the people.
Though they were devout atheists, the Soviets frequently invoked religious–nationalist interpretations of Russian history, the recurring narrative that Russia is a chosen nation with a special missionary role to play in world affairs. In the traditional narrative, Holy Mother Russia is Christendom’s bulwark against the Islamic and pagan East. In the Soviet gospel, Russia is chosen by History to show the way to the one true faith of socialism.
While socialism has in theory been presented as an internationalist creed, in fact practically all socialist enterprises in the world have been nationalist enterprises as well. The Soviets were nationalists when it came to Russia and internationalists when it came to the surrounding peoples they subjugated; the Chinese were and are as frankly nationalist a regime as exists in the world today. And it is not merely to score a cheap rhetorical point that critics of socialism feel obliged to remind the world that Adolf Hitler came to power as the champion of a particular kind of socialism and at the head of a socialist party. As historian John Lukacs writes,
“During a brief segment on Real Time With Bill Maher, [actor Sean] Penn explained that the mainstream news media in the United States regularly lies about Chávez by designating him a dictator, and that ‘truly, there should be a bar by which one goes to prison for these kinds of lies.’ Such a sentiment is likely (or do I mean hopefully?) not Penn’s measured view on matters of free expression, but it is eerily close to the kind of threat Chávez uses to intimidate members of the opposition and elicit self-censorship within the Venezuelan media.”
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Reason magazine, 2010
We are all national socialists now. Of course the proportions of the compound of nationalism and socialism vary from country to country; but the compound is there, and even where social democracy prevails, it is the national feeling of the people that ultimately matters. What was defeated in 1945, together with Hitler, was German National Socialism: a cruel and extreme version of national socialism. Elsewhere nationalism and socialism were brought together, reconciled and then compounded, without violence and hatred and war.5
Chávez’s implementation of his own version of national socialism has not resulted in a full-on war, though he’s come close a few times with his provocative saber-rattling against Columbia. Still, it would be too generous to say that his work has thus far been accomplished without violence or hatred. But to understand Venezuelan socialism, it is essential to understand that it is a socialism that incorporates nationalism, just as Soviet socialism did, just as Maoism did, just as the Marxist-inspired postwar revolutionary liberationist movements of the Third World did. What Holy Mother Russia was to the Soviets, what the pride of the Middle Kingdom is to the Chinese, what the volk were to Hitler—all of that has a counterpart in Latin America, concentrated in the person and legacy of a single man: Simón José Antonio de la Santísima Trinidad Bolívar y Palacios, known variously as “El Libertador” and “the George Washington of South America.”
It is often said of a great man that he would “roll over in his grave” if he could see what his epigones had done in his name. Well, Chávez helped Simón Bolívar roll over in his grave—literally. Writer and human-rights activist Thor Halvorssen told the story in 2010:
Shortly after midnight on July 16, Venezuelan President Hugo Chávez reached back in time. He presided at the exhumation of the remains of Simón Bolívar—Latin America’s greatest independence hero, who helped liberate the region from Spain in the 19th century, and the object of Chávez’s personal and political obsession.
The skeleton was pulled apart. Pieces were removed, such as teeth and bone fragments, for “testing.” The rest was put in a new coffin with the Chávez government’s seal. Chávez, who also tweeted the proceedings, gave a rambling speech in which he asked Christ to repeat his Lazarus miracle and raise the dead once more. He also apparently conversed with Bolívar’s bones.
“I had some doubts,” Chávez told his nation, paraphrasing the poet Pablo Neruda, “but after seeing his remains, my heart said, ‘Yes, it is me.’ Father, is that you, or who are you? The answer: ‘It is me, but I awaken every hundred years when the people awaken.’ ”6
Even before assuming official power in Venezuela, Chávez had long sought to identify himself with El Libertador, and thereby to unify, in the public mind, his own person, the state, and the people. As the Sun King had put it some centuries before, “L’etat, c’est moi.” (“I am the state.”) After failing to achieve power through a military coup, Chávez immersed himself in electoral politics—along with plain old-fashioned mob politics—and he named his gang the Bolivarian movement. Upon assuming power, Chávez demanded that Venezuela change its name to the Bolivarian Republic of Venezuela. He insists that a chair be left open at cabinet meetings for the use of Bolivar’s ghost, and he had Bolivar’s sword pillaged from the national museum for his own use. (He has given away replicas as gifts to such deserving luminaries as Mahmoud Ahmedenejad, Moammar Gaddafi, Robert Mugabe, Alexander Lukashenko, Vladimir Putin, and Raúl Castro.)
To underline his image as the reincarnation of Bolivar, every news station in the country was required to broadcast footage of Chávez’s exhumation of the great man’s corpse and his conversation with it. As the Venezuelan national anthem played behind the footage, all of the nation’s televisions broadcast historical images of Bolívar from famous paintings, then images of his skeleton, then images of Chávez.
“If you can imagine Washington, Jefferson, Madison and Lincoln rolled into one,” Halvorssen writes, “you can appreciate Bolívar’s historical power in much of Latin America, and why a ‘Bolivarian’ revolution is infinitely more legitimizing than a ‘Chávez’ revolution. Chávez’s aggressive appropriation of Bolívar—first politically and now physically—is especially meaningful because it is an attempt to wipe away the most important opposition leader and philosophical nemesis Chávez could ever face: Bolívar himself.”7
Notably, far from being a proto-socialist, Bolívar was a man who traveled with a copy of Adam Smith’s The Wealth of Nations, a man who so admired Thomas Jefferson that he sent a favored nephew to study at the University of Virginia, which Jefferson had designed. The content of his thought, however, is not nearly so useful to Chávez as the contents of his crypt, and the nationalist emotions that they can be used to stir up to provide a distraction from the inevitable failings of socialism. “Simón Bolívar’s cadaver is like any other cadaver, but his legacy is a great deal more worth stealing than that of Kim Il Sung,” writes the iconoclastic socialist journalist Christopher Hitchens, who has spent a good deal of time in the company of President Chávez. Having developed a keen eye for the delusions of an authoritarian, Hitchens writes that Chávez
is very close to the climactic moment when he will announce that he is a poached egg and that he requires a very large piece of buttered toast so that he can lie down and take a soothing nap. Even his macabre foraging in the coffin of Simón Bolívar was initially prompted by his theory that an autopsy would prove that The Liberator had been poisoned—most probably by dastardly Colombians. This would perhaps provide a posthumous license for Venezuela’s continuing hospitality to the [Columbian] narco-criminal gang FARC, a cross-border activity that does little to foster regional brotherhood.8
Bolívar, in fact, was a product of the Enlightenment and an admirer of the American Revolution. In some ways, he was more committed to the implicit ideals of the United States than were the Founding Fathers themselves—among other things, he opposed slavery. His intellectual landmarks included Jefferson, Smith, and Montesquieu. Chávez, too, embraces the Enlightenment, in his way; he identifies with the Dark Prince of the Enlightenment, Jean-Jacques Rousseau, the anti-liberal who, living at what was then the apex of Western liberty, saw man only “everywhere in chains.”9 It was Rousseau who developed the distinction between the “popular will”—which might be expressed in democratic elections and the like—and the “general will,” which had to be discerned by enlightened rulers, and which provides camouflage for every kind of authoritarian undertaking in the name of the common good.
“There is often a great deal of difference between the will of all and the general will,” Rousseau writes. “The latter looks only to the common interest; the former considers private interest and is only a sum of private wills. But take away from these same wills the pluses and minuses that cancel each other out, and the remaining sum of the differences is the general will.”10 It is within this construction that the political theorist detected the roots of “totalitarian democracy.” President Chávez, who describes himself as a “Bolivarian democrat” and a “Rousseauian democrat,” has been occasionally democratic in his means and reliably totalitarian in his aspirations.
Like many anti-American autocrats, and practically all socialist autocrats, Chávez has not wanted for apologists in the West, particularly in the United States. It was no surprise to find apologia for Chávez and his regime being published by such organs of official opinion as the Center for Strategic and International Studies. What was surprising, however, was the extent to which Chávez’s “Rousseauian” song-and-dance shtick went over with the smart set. CSIS’s Howard Wiarda offered up the official talking points: “Chávez follows in the footsteps of Jean Jacques Rousseau and Simon Bolivar rather than Locke, Jefferson, and Madison. Rousseau was an advocate of direct democracy. We need to recognize that other forms of democracy are legitimate. Chávez is no threat to U.S. interests at the present time. The United States can try to influence Chávez, but should be prepared to wait him out.”11
Say this for Rousseau: centuries later, the philosopher is still in the headlines. Identifying some comments by Chávez that could supposedly help us understand his overall program, Wiarda writes,
Two comments in particular stand out. When Chávez on one occasion declared, “I am a Rousseauian Democrat” and on another said, “I am a Bolivarian Democrat,” it drove the U.S. Embassy in Caracas crazy because (1) the embassy had no idea what those terms meant and (2) it is inconceivable to U.S. citizens that there could be any form of democracy besides our own Lockean, Jeffersonian, Madisonian kind.
. . . Rousseau was an advocate of the leadership principle, like Plato’s “philosopher-kings.” He believed that great heroic charismatic leaders—presumably like Chávez’s image of himself—could lead their people in innovative, revolutionary new directions, without the careful preparation in self-government or gradual development of institutions that the more prosaic (and boring) writers like Locke, Madison, and de Tocqueville understood as the base of democracy. . . . It follows from Rousseau’s analysis that the separation of powers or check and balances is not needed because those institutions would only get in the way of a heroic leader’s ability to act on the general will. Rousseau, like Marx one hundred years later, would also be against the intermediaries or what we now call “civil society” because that would also hinder a leader’s ability to carry out the general will, which he presumably knows intuitively.12
Intuition? That’s one way to get around the Hayekian knowledge problem. But is it a good one? The outcome in Venezuela suggests it is not. In any case, the intuition of a man who produces public policy after communing with the corpse of his political hero may be suspect.
Socialism always presents itself as a rational system. Marx called his vision “scientific,” but the lesser socialists are no less prone to argue that they are engaging in rational management and rational planning of the economy or of particular sectors. One obvious example is the gang that wants to reshape American healthcare in the name of such an econometric abstraction as the ratio of healthcare spending to GDP, as though there were a Golden Proportion that applies to national medical expenditures.
Now, American socialists are not quite so crude as Chávez; they did not dig up FDR’s grave, but they did invoke his name, his image, and his legacy at every turn. It would be too much to say that all instances of socialism ultimately are identical, but there almost always is a family resemblance. And very often that resemblance takes the form of a brutal crackdown, which is precisely what has happened in Venezuela as it has become clear that THE PLAN is not going to be fulfilled—not now, not in the near future, not in the distant future, not ever.
Chávez’s popularity plunged along with Venezuela’s economic prospects. In light of the country’s crumbling infrastructure, chronic food and water shortages, massive unemployment, 35 percent inflation, scarce basic consumer goods, and a failing electricity system, it’s no surprise that Venezuelans have turned against their president. In early 2010, Chávez’s approval ratings were down to 40 percent—but, in truth, they probably were far lower. Venezuelans are afraid to criticize the president in public, much less with a stranger taking a phone survey. And they have good reason to be; Chávez has shown that when it comes to those who criticize his regime—those who criticize THE PLAN—he can take down the high and mighty, to say nothing of a regular citizen.
Raul Baduel, for example, once was one of the most powerful men in Venezuela. He was a general who helped to defeat the anti-Chávez coup of 2002. He was, for a time, a close associate of the president, but like many others, he became disillusioned with Chávez’s consistent policy failures and his increasingly authoritarian ways. When Chávez stripped him of his post as minister of defense, Baduel was liberated to become an open critic of the regime.
“[Venezuela] may be an energy colossus, with the largest conventional oil reserves outside the Middle East and one of the world’s mightiest hydroelectric systems, but that has not prevented it from enduring serious electricity and water shortages that seem only to be getting worse.
“President Hugo Chávez has been facing a public outcry in recent weeks over power failures that, after six nationwide blackouts in the last two years, are cutting electricity for hours each day in rural areas and in industrial cities like Valencia and Ciudad Guayana. Now, water rationing has been introduced here in the capital.
“The deterioration of services is perplexing to many here, especially because the country had grown used to cheap, plentiful electricity and water in recent decades. But even as the oil boom was enriching his government and Mr. Chávez asserted greater control over utilities and other industries in this decade, public services seemed only to decay, adding to residents’ frustrations.”
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New York Times, 2009
In 2007, Baduel helped hand Chávez one of his few political defeats when the president was forced to accept the outcome of a referendum that blocked one of his moves to augment his power. Chávez had been trying to find a way to set aside the outcome of the vote, but Baduel and a group of fellow officers persuaded him that he would be wise to accept the judgment of the electorate. Soon afterward, military police took Baduel into custody on charges of having mismanaged his budget while minister of defense. He was quickly sentenced to eight years in prison.
Chávez had little to fear from making an example of his former minister of defense. As a former soldier himself, Chávez is deeply familiar with the politics of the Venezuelan military, and he had long since purged his critics and enemies from the officer corps and key defense ministry roles. Beyond that, his friend Fidel Castro has lent him a team of Cuban counterintelligence operatives who monitor the allegiances of top military personnel—a little gift from one socialist to another.
But it is difficult to keep a lid on a large and energetic country such as Venezuela—even with teams of Cuban spies at one’s disposal. In response to the crackdown on Chávez’s critics, General Alberto Mueller Rojas, the vice president of Chávez’s party, quit his post in March 2010. Chávez’s various ministries put out dishonest press releases claiming that Mueller had asked to be relieved of his duties because of failing health. But Mueller, not one to be cowed, made it clear in public that it was not his health, but Chávez’s revolution that is failing.
Chávez’s critics seem to habitually develop “health problems,” along with legal problems, career problems, tax problems, and regulatory problems. Globovision owner Guillermo Zuloaga, whose TV network is the leading critic of Chávez’s regime and an advocate for free-speech rights, is also the owner of a chain of car dealerships. After delivering a blistering attack on Chávez’s stifling campaign against the free press, he found himself arrested on charges of usury and price-fixing, accusations stemming from his car business. Likewise, a large Globovision shareholder who also owned a large bank had his bank seized.
Globovision, incidentally, is the outfit that broke the story about all that food rotting in government warehouses. That is to say, Globovision’s owner and investors are going to jail and having their property seized for exposing the inefficiencies and corruption of Venezuela’s socialist system. Another television station, RCTV International, met a similar fate, along with five cable outlets. About forty independent radio stations have been shut down as well, and a new law will allow Chávez to imprison reporters, editors, or publishers who share “information that harms the interest of the state.”
The clampdown has economic aspects as well as political aspects. Indeed, one of the difficult tasks in analyzing a socialist economy is separating mere economic incompetence from intentional economic abuses committed with malice aforethought. For instance, when the Chávez regime’s failed central-planning efforts produced massive shortages of food and household goods, it tried to exert direct management of the grocery stores. The supermarket chain Exito was seized by the government, and another chain, Cada, was made a takeover target.
But such nationalizations failed to make THE PLAN work, so the government’s next step was to try to control the import and, especially, the export of food and consumer goods. It is a well-established law of economics that price-fixing leads inevitably to shortages, which is precisely what Chávez’s program of price controls did. When that failed, he tried to increase his control of the import-export economy by interfering with the exchange rate of Venezuela’s currency, which is named, inevitably, the bolivar. By setting an artificially high rate of exchange for bolivares, Chávez had intended to buck up the buying power of Venezuelans and thereby help strengthen the economy. What he actually did—what any competent analyst of state economic planning could have told him he was doing—was to create a giant black market for currency, making criminals out of practically every importer, exporter, and traveler in Venezuela. The real rate of exchange for bolivares in the free market—which is, in this case, the black market—set the currency’s strength at about half the official rate.
What followed next was pure comedy. Chávez decided that Venezuela needed two exchange rates, one for the purchase of essential goods and another rate for the purchase of non-essential goods. Venezuelans exchanging bolivares to purchase essential goods could do so at 2.6 to the dollar, while those buying inessential goods had to exchange at 4.3 to the dollar. (The real rate, on the black market, hit about 7 bolivars to the dollar around the same time.) The result was, of course, economic chaos. Inflation jumped from an already catastrophic 30 percent to a truly ruinous 35 percent. The price of oil began to weaken shortly thereafter, leaving the Chávez regime strapped for the cash it needed to continue Boss Hugo’s campaign of stockpiling Russian weapons and military materiél while selling his countrymen’s oil at a steep discount to allies such as Castro.
Naturally, this economic, social, and political displacement has been accompanied by the decay of public institutions—particularly law and order. Caracas is, as of this writing, the most dangerous capital city in the Americas, a place where ransom kidnapping is out of control. The Chávez regime’s response, so far, has been quintessential central planning—to require the reporting of kidnapping cases (victims’ families often have not bothered, since the police, when they are not actively involved in crime themselves, are ineffective), and, when cases are reported, to freeze the bank accounts of the victims’ families—thereby preventing the payment of ransoms. The result, of course, is the death and disfigurement of kidnapping victims whose families have no recourse and who cannot rely upon the police to rescue their loved ones. Thus Venezuela endures the worst of both worlds: a police state that cannot control crime.
There is a famous picture of the Koreas that demonstrates, in the most dramatic way imaginable, the differences between a socialist economy and a capitalist economy. Taken by satellite at night, the photo shows South Korea’s roads and cities flooded with light. The light stops abruptly at the border, with North Korea shrouded in darkness except for a dim glow around the official precincts of Pyongyang.
Darkness is falling on Venezuela, too.
In spite of being one of the world’s energy powerhouses, Venezuela cannot produce enough power to meet its own citizens’ needs. There are many reasons for this: chronic underinvestment in the state-run oil firms is one; chronic underinvestment in the state-run electricity firms is another. The Chávez government, unable to ignore the rolling blackouts that, along with food shortages, have set so many Venezuelans against him, did what socialists do—he unveiled a five-year plan. In 2010, the first year of the plan, Venezuela was to add 5,900 megawatts of power. It managed just over 20 percent of that goal.
Why would a country that produces a large share of the world’s petroleum be unable to power its own cities and factories? One of the reasons is that Venezuela has, in recent years, resisted building oil-based electricity plants, relying instead on hydropower, which makes generation vulnerable to changes in weather. Chávez, of course, wants to use as little of his country’s oil at home as possible; with his currency controls and other regulation having thoroughly disrupted the export-import markets, and the economy in shambles because of his broader socialist agenda, Venezuelan oil sold on the international markets is the government’s main source of hard currency—mostly those hated Yankee dollars—that it needs to provide for its own operations, to pay its apparatchiks’ salaries and gratuities, to fund its shenanigans abroad (such as its support of FARC terrorists in neighboring Colombia), and to pay Fidel Castro the rent on his spies. Thus are Venezuelans not only starved of the things they need to import from abroad, but also starved of the one thing that they ought to have in abundance: energy.
The darkness that is falling on Venezuela is the same darkness that can be seen over North Korea at night. It is familiar, and it is predictable. We have seen it creep across country after country. And we can see it creeping across our own.