How to Utterly Destroy a Place – Socialism in Venezuela

Published June 17, 2016

During WWII, the U.S. dropped conventional explosives, fire bombs and atomic bombs on Japan. The U.S. and the U.K. together conducted massive bombing attacks on Germany, destroying cities, factories, oil refineries and transportation infrastructure. Yet, soon after the war, both Japan and the western portion of Germany rebounded. They quickly joined the most advanced economies of the world in terms of standard of living. In the case of western Germany, their turn-around was called a miracle. Yet, today, Venezuela joins Detroit, Puerto Rico and Greece, a basketcase, its government bankrupt, and its economy collapsed. Not being sustained by transfer payments from a larger entity, the people of Venezuela, weakened by years of deprivation, now face very bleak prospects. The most vulnerable among them – infants, the elderly and the sick – are dying. And, on the horizon, loom the four horsemen of the apocalypse: starvation, plague, anarchy and death. What is it that can utterly destroy a place, even more so than bombing? In one word, socialism.

In a free-market economy, people have healthy incentives to work and save, to form businesses and invest, to explore, innovate and invent, in these and other ways “to truck and barter.” The incessant desire of man to do better, whether through profit or achievement or goodness, when governed by the rule of law, leads to a progressive society. To be sure, not everyone directly benefits. Children, those enfeebled by old age or physical, mental or emotional conditions, will need help from others through family, private charity and social welfare programs. But, a free-market economy tends to induce compassion as well as the market virtue of hard work, honest-dealing, thrift and prudential management. Therefore, the description of the turn-around in Germany as a miracle was incorrect. The turn-around should have been expected. A miracle would be for a socialist economy to work.

Socialist Venezuela did not have a miracle. It simply proceeded downhill, like water. The workings of the laws of economics are merely slower and more complicated than those of the law of gravity. The specifics of this country’s experiment in socialism aren’t unique, but deserve some mention. Venezuela used to have a vibrant economy in terms of food production and other industries, as well as oil production. Then, when Hugo Chavez was elected president, he famously directed a portion of the profits of oil production be used to subsidize food for the poor and neighborhood health clinics.

What is not so well known is that he used price controls to minimize the cost of providing food to the poor, and near slave-labor from Cuba to staff the health clinics. For the past several decades, Cuba has been exporting health care professionals to Venezuela and other countries, that they pay less than $100 a month, in barter-like exchanges for oil or other considerations. In the case of food, price controls made it unprofitable for farmers to grow food. Over time, less and less food was produced within the country. So, instead of being self-sufficient in food, and actually exporting certain kinds of food, Venezuela became an importer of food. This “worked” for a time, as revenue from oil sales enabled the government to import the difference between domestic consumption and domestic production. But, over time, as more and more people left the farms and joined the unemployed urban poor subsisting on give-away programs, the cost of the program grew. In the mean time, in subsequent elections, Chavez promised an expanding list of free and subsidized goods for the poor who constituted the base of his political party. Then came the collapse of oil prices, and the government could no longer import much.

For many of the people of Venezuela, life nowadays consists of searching for food, their ration coupons in hand, so to speak. This takes up so time, there actually is no time to work. Even while there is a desperate food shortage, many of the fields and pasturelands of the country lay fallow. Chavez’ successor, a bus driver named Ralph Cramden or Nicolas Madura or whatever, along with his entourage, live in the Presidential palace, scrapping by on $3 million a day. And, every time the people demand change, he says “to the moon, people, to the moon.” The rich and powerful always come out ahead. That’s one thing capitalism and socialism have in common.