Venezuela’s Economic Collapse: A Process 50 Years in the Making
In recent times, Venezuela has been the object of many headlines across the globe that detail its current economic predicament. Once Latin America’s most stable country, Venezuela is now experiencing a historically unprecedented economic and social collapse.
How did such a nation awash with bountiful oil reserves and numerous decades of democratic stability stoop to such levels of misery?
The conventional narrative typically points to Hugo Chávez’s arrival to power in 1998 as the main catalyst of Venezuela’s economic decline. Quantitatively speaking, Chávez’s presidency was responsible for the largest economic downturn in the country’s history. Through an unprecedented number of expropriations, capital controls, and price controls implemented by the Chávez regime, Venezuela went from a regional leader to a veritable basket case.
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History has shown that the rise of socialism and the ensuing economic decline never comes about in one fell swoop. When one looks further into Venezuela’s history, the seeds of Venezuela’s economic destruction were sowed decades before Chávez’s arrival to the political scene.
To fully comprehend how Venezuela has dropped to such lows, an analysis of its history pre-Chávez to the present is necessary.
Venezuela’s Initial Success
From the 1920s to the 1960s, Venezuela experienced an unprecedented era of economic prosperity thanks to its discovery of oil resources. In tandem with an institutional framework of limited government and immigration policies that attracted skilled European labor, Venezuela was able to not only become the most prosperous country in Latin America, but it also became the country with the 4th highest per capita GDP in the world by 1950.
Despite being governed by various military governments during this time period, Venezuela’s economy was characterized by a stable monetary policy, a system of clear property rights, relatively low levels of taxation, and low levels of foreign and public debt. By the start of the 1950s, Venezuela was positioned to be a world power.
The Beginning of Social Democracy
The dictatorship of Marcos Pérez Jiménez was finally put to an end in 1958 at the hands of a coalition of left-leaning reformists led by Rómulo Betancourt. Venezuela’s return to democracy brought a new political order which emphasized
interventionist economic policies such as the nationalization of the oil industry and the development of infant industries through import-substitution industrialization.
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From the get-go, Venezuela’s first post-Punto Fijo Pact government under Romulo Betancourt embarked on a campaign of land reform that inefficiently
redistributed the property holdings of the wealthy landed classes. The recipients of these lands only received the right to farm the land, but no official title of ownership. Betancourt’s government would then follow with
considerable tax hikes that saw taxes on income rates triple to 36% and introduce a more complex system of taxation. In typical fashion, spending increases would be accompanied with these tax hikes, as the Venezuelan government would start to generate fiscal deficits as a result of its social spending programs. These growing deficits would become a fixture in Venezuelan public finance during the pre-Chávez era.
Under the first presidency of Carlos Andrés Pérez from 1974 to 1979,
Venezuela experienced the largest expansion of the Venezuelan state. In this period, the iron, petroleum, and steel industries were nationalized under the rationale that these were strategic industries that “belonged to the Venezuelan people.” Buttressed by high oil prices that were a result of the Arab oil embargo, Venezuela used oil revenues to engage in ambitious social spending and finance its import-substitution programs.
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The Devaluation of the Bolivar
The hyperinflation that characterizes present-day Venezuela is not an isolated historical phenomenon. Although inflation rates never approached the hyperinflationary levels that are seen in current times, during Venezuela’s Fourth Republic it was not out of the ordinary to see inflation in double or triple digits.
The Venezuelan Bolívar was one of the strongest currencies in Latin America from the 1950s to the 1980s, but this soon came to an end by the early 1980s.
On October 1983, better known as Black Friday in Venezuela, the Bolivar experienced the largest devaluation in its history and set basis for further devaluations in the future.
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Venezuela’s Black Friday, marked a critical turning point in Venezuelan history. By the end of the 1980s, Venezuela came out with undeniable structural problems – increasing debt, unsustainable spending programs, a staggering amount of economic regulations, and an increasingly protectionist trade policy – that would lead to increasing rates of poverty and economic stagnation.
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Pérez’s successor, Rafael Caldera would continue the same path of IMF reforms that consisted of a mixed array of privatizations and exchange controls imposed by the state. The incoherency of Caldera’s reforms resulted in further stagnation and increasing poverty.
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By 1998, 50% of the Venezuelan population was living under poverty. Such dismal economic performance, led Jones to classify Venezuela as a “growth disaster.”
Eventually, this environment of discontent and malaise allowed for Hugo Chávez, recently pardoned for his insurrection escapade of 1992, to insert himself in the political arena. Channeling the anger of the disillusioned masses, Chávez promised a new path that would supposedly right the wrongs of the two-party model that preceded him. Little did many know that Chávez would make the malfeasances of Venezuela’s 4th Republic look like child’s play once he took firm control of the reins of power.
Despite his outsider rhetoric,
Chávez not only continued many of the same misguided economic policies as his predecessors, but he did so at astronomical rates that put the country on the road to economic collapse.
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Chávez’s death in 2013 did not slow down these interventionist policies, as his successor Nicolás Maduro would only continue Chávez’s failed policies.
The expropriations and economic controls continued unabated and have resulted in the complete destruction of Venezuela’s productive capacity. Compounded with inflation bordering on hyperinflationary levels, Venezuela has reached a point of no return in its economic downward spiral.
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Economists such as Ludwig von Mises have presciently noted that even the smallest of economic interventions can gradually beget much larger interventions in the long-term if the right political institutions are not present.
Falling for the siren song of social democracy and its more radical cousin, socialism, will only perpetuate the vicious cycle of boom and busts that has plagued Venezuela over the past 50 years. If Venezuela is to move forward as a society, its political class, entrepreneurs, and civil society must embark on a new path of classical liberalism and free markets.
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Much more:
https://thelibertarianrepublic.com/v...in-the-making/
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Lilian Tintori, wife of Leopoldo Lopez with Venezuelian rebels Donnell, Mike and Marco
Originally Posted by AZJoe
CIA swamp Venezuelan attacked
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