What can we learn about that “economic miracle” in Venezuela?
Only a few short years ago, former Bernie Sanders advisor David Sirota hailed Venezuela as an “economic miracle,” but he wasn’t the only one with misplaced adulation for the oppressive regime. Many other fans of socialism cheered on the authoritarian socialist state, and for a time, as the economy of Venezuela—Latin America’s richest country—expanded, some vainly hoped that Venezuela was proof that socialism can work in practice.
Instead of becoming the ideal socialist utopian paradise, Venezuela’s economic miracle proved to be a painful tragedy in the making. Socialists took a vibrant country and helped drive its economy into the ground, and it slunk into a deep dark depression that nearly anyone with a cursory understanding of socialism could have predicted. Yet after facing years of economic adversity, Venezuela’s economy is beginning to show signs of life. But make no mistake: socialism isn’t saving Venezuela. Capitalism is, and help can’t come quick enough.
As a wave of socialism swept through Venezuela beginning in 1999, the government grew by leaps and bounds and began stamping out signs of capitalism. Officials instituted price controls to artificially keep prices low and tinkered with their currency.
This was not enough for the central planners who went even further. The state seized large portions of the private sector—as it nationalized much of its agriculture, finance, mining, telecommunications, energy and oil sectors—and redistributed wealth on a large scale. They even forced businesses that supposedly cater to capitalist excess like casinos to shutter their operations.
The results of these policies were as sad as they were predictable. The casinos left and took their jobs and investments elsewhere; the government proved inept at managing affairs in the private sector; price controls kept consumer costs so low that it was no longer profitable for merchants to sell such products; and after government officials mismanaged their monetary system, the bolivar became practically worthless.
In fairness, these aren’t the only issues impacting Venezuela. The average price of crude oil—on which Venezuela grew overly reliant—plummeted from 2014 to 2016, and the United States imposed economic sanctions on Venezuela in 2017. However, Venezuela’s collapse began before these sanctions were in place. Nevertheless, combined, this led Venezuela into the world’s worst peace-time economic depression in decades. The economy contracted by around 80 percent in the past seven years, and the people were at the mercy of the state’s horrid policies.
Basic staples like milk and toilet paper became incredibly scarce, and the Venezuelans often went without food and were malnourished. They each lost, on average, about 24 pounds in 2017 alone. From 2016-2019, Venezuela experienced an inflation rate of over 53 million percent, and in 2019, the bolivar depreciated by some 90 percent.
As a result, Venezuelans languished for years, but there seems to be a light appearing at the end of the tunnel. Venezuela’s heavy-handed socialist leaders have periodically taken interesting pivots toward capitalism in the past few years, which is easing some of their problems. In search of a quick cash infusion into their economy, they’ve since reversed their ban on casinos, which could welcome 30 new casinos in the near future, reduced tariffs and curtailed draconian price controls—although officials have been re-instituting some of them.
While their monetary system is still a mess, despite originally forbidding the U.S. dollar’s use, Venezuelan President Nicolás Maduro and Venezuelans have unofficially adopted it as one of their primary forms of currency. Maduro even said, “It can help the recovery of the country, the spread of productive forces in the country, and the economy … Thank God it exists.” He has a point. The dollar provides a kind of stability that cannot be found with the bolivar, and it helps fight against hyperinflation.
The results speak for themselves. Venezuela’s economy is actually growing—albeit modestly. “Gross domestic product will rise anywhere from 5% to 10% in 2021, the first year of growth since authoritarian leader Nicolás Maduro took office in 2013,” according to the Wall Street Journal.
After years of crippling depression, this is a welcome sign for Venezuela. However, while the country is still in the grip of a socialist despot, the Venezuelan resurgence is thanks to capitalist and freer market policies. Unfortunately, socialist strongmen like Maduro rarely seem capable of learning these lessons.
Image credit: Zerophoto
