Venezuela, a month left at best?

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Part II

Pérez would immediately turn to the International Monetary Fund for help. The IMF’s suggestions were ultimately a mixed bag. On the positive side, they encouraged tariff reductions and privatization of state-run industries. That being said, the government could not tame inflation, implemented a value-added tax on top of the income tax system, and did not even bother to privatize its state-owned oil company.

Nevertheless, the tariff reductions and privatizations gave the economy some breathing room. But Pérez’s market reforms weren’t without political pushback. In fact, his attempts to restore some semblance of normalcy to the Venezuelan economy would lead to his undoing.

Hugo Chavez and Political Breakdown

Unfortunately, in the middle of these reforms, political drama began to rear its ugly head. Pérez’s own party, Democratic Action (AD), was not a fan of Pérez’s economic program. Fearing that his economic liberalization schemes would undermine their political privileges, they worked tirelessly behind the scenes to stop Pérez’s reforms.

Additionally, AD had plenty of help on the streets. An assortment of leftist groups took to the streets and protested Pérez’s “austerity” policies. These protests snowballed into the infamous “Caracazo” incident of 1989. In this instance, the Venezuelan government put down a series of protests in the capital city of Caracas, leaving hundreds dead.

Even with this repressive incident, radical groups continued to mobilize throughout the country. One group that stood out was then Lieutenant Colonel Hugo Chávez´s organization, Revolutionary Bolivarian Movement-200 (MBR-200). Chávez exploited the ever-growing political disarray by organizing an anti-government movement within the Venezuelan military. The MBR-200 attempted to flex its muscles in 1992, with two failed coup attempts.

As punishment for his failed uprising, Chávez was imprisoned. Nevertheless, the damage to the bipartisan model had already been done. As social unrest snowballed, the Pérez administration gradually lost the public’s trust. Pérez’s fate was sealed when he was impeached for corruption charges in 1992.

By then, the Punto Fijo model had completely collapsed. The Venezuela of the 1950s to 1970s – an era of robust growth and political cohesion – soon became a distant memory. The Punto Fijo model then gave way to a new coalition, Convergence (Convergencia), of disgruntled political parties. Headed by President Rafael Caldera, Convergence attempted to reassemble the broken pieces of Venezuela’s political machine.
In terms of policy, Rafael Caldera maintained Venezuela’s statist model of economic organization. Caldera continued implementing certain lukewarm IMF measures, but inflation raged on, peaking at 100 percent in 1996. Structural problems like privatizing Venezuela’s national oil industry were never addressed. Big business’ cozy relationship with the government also remained intact.

The Failure of Soft Socialism

No matter how apologists of Venezuela’s democratic era (1958-1998) slice it, its political class delivered sub-optimal results. From 1958 to 1998, Venezuela’s per capita GDP growth was a disappointin -0.13 percent. In essence, Venezuela grew poorer during the Punto Fijo period.

Charles Jones, the author of Introduction to Economic Growth, categorized Venezuela as a “growth disaster” for its lackadaisical economic performance. The only other Latin American country in this economic hall of shame was Nicaragua – a country under the iron grip of a socialist regime and the victim of a bloody civil war.

By the time Chávez entered the political ring, Venezuela was ripe for the taking. Its disillusioned masses were looking for a savior outside of the political status quo, and Chávez fit the bill. At first, Chávez masked his radical Marxist intentions by positioning himself as an anti-corruption candidate.

However, his actions betrayed his neutral rhetoric. Out-and-out Marxists would join Chávez’s brain trust and move him towards radical socialism once in office. Sadly, Venezuela’s fed-up voters were not aware of this when they casted their ballots for Chávez. Unbeknownst to them, Chávez was about to take Venezuela on a dangerous ride.

The Rise of Socialism

Chávez was correct in his assessment of the previous Punto Fijo order’s corruption. Unfortunately, he continued the same failed policies, expanding their reach and enacting them in a tyrannical manner.

Property rights went out the window once Chávez had full control of the state apparatus. Expropriation of private property became the norm during the Chávez years. According to some reports, the Venezuelan government confiscated upwards of six million acres of farmland. Foreign companies such as ExxonMobil and ConocoPhillips also fell on the wrong side of the Venezuelan government’s expropriation crusade.

Economic ignorance continued with currency and price controls, which have caused massive distortions in the Venezuelan economy. In fact, price controls are the main culprit behind Venezuela’s infamous shortage crisis.

Making matters worse, Chávez politicized Venezuela’s Central Bank and state-owned oil company, which were already under too much government influence. State-owned PDVSA was used as a money spigot to finance Chávez’s social spending projects. The Venezuelan Central Bank cranked up the printing press and increased the money supply at astronomical rates. Consequently, hyperinflation is now a reality in Venezuela and is on par with Germany in 1923, the year of Hitler’s infamous Beer Hall Putsch that sought to capitalize on the Weimar Republic’s failed economic policies.

Although Chávez died in 2013, his tyrannical socialist system lives on with his successor Nicolás Maduro. Maduro has continued Chávez’s policy of plundering PDVSA, stripping it of investment, sacking experienced managers, and replacing them with sycophantic military officers.

Even though Venezuela has the world’s largest energy reserves according to the U.S. Energy Information Administration, the corruption and mismanagement of state-owned PDVSA is symbolic of the larger collapse of Venezuela. In many regards, Venezuela is a failed state and has reverted back to its historical mean – an increasingly fragmented, political backwater.

What’s Next for Venezuela?

Long lines to get basic food items. Hospitals running out of medical supplies. Starving people eating zoo animals.

These look like scenes from a post-apocalyptic film. However, these are lurid images of what present-day Venezuela is going through. By opting for the “death by a thousand cuts” route of state intervention in the marketplace, widespread institutional decay, private property seizures, fiat money, and rampant corruption – all pursued in the name of a socialist utopia – Venezuela is bleeding to death from self-inflicted wounds.

One can only wonder how this film would have played out had the Venezuelan populace been armed. Countries like the U.S. have avoided Venezuela’s fate in part due to the presence of armed civilians as a check against would-be tyrants.

If Venezuela had any semblance of a Second Amendment, the Venezuelan people could have stood up against Chávez or Maduro’s tyranny. Human history features repeated episodes of tyrants running roughshod over defenseless subjects, and the Venezuelan case is no different. Political theorist Niccolò Machiavelli was correct in his observation that force is the option of last resort against despots:
“You must know, then, that there are two methods of fighting, the one by law, the other by force: the first method is that of men, the second of beasts; but as the first method is often insufficient, one must have recourse to the second.”

For this tragic chapter of the Venezuelan story to come to a close, the Venezuelan people will have to choose a different path – a path in which property rights and free markets are respected. From there, this horror story will eventually become a distant memory.

Until then, Venezuela is joining South Africa as yet another 21st-century casualty of socialism.