Screenshot from YouTube video, How Socialism Wiped Out Venezuela’s Spectacular Oil Wealth, Reason TV.
As Venezuela descends deeper into chaos in the wake of a highly irregular election, fingers are being pointed, and there is a lot of speculation about just what it is that made Venezuela poor, causing more than a quarter of the population to flee the country and now about two-thirds of the population supporting the opposition protesters clashing with the police in the streets.
Apologists for Venezuela’s socialist regime claim that U.S. sanctions made the country poor. And while sanctions didn’t help, the reason the country is poor is because of the socialist policies of the Maduro and Chávez regimes. The transition to socialism and the crash of the economy all happened long before Trump imposed sanctions in 2017.
Venezuela’s economy, while not as centrally planned or restrictive as communist Cuba’s, has been trending in that direction since Hugo Chávez took over in 1999.
Central planning steadily increased during the Nicolás Maduro regime, which began in 2013 and has lasted through the recent election, which was so flawed that the results were rejected not only by Western nations and The Organization of American States (OAS) but even by some socialist allies in Latin America, including Colombia’s leftist President Gustavo Petro and Chile’s leftist leader Gabriel Boric.
Hugo Chávez came to power in 1999 with grand promises of social justice, economic equality, and wealth redistribution.
His socialist agenda, popular among the poor, centered on nationalizing key industries, including oil, telecommunications, and electricity. Companies were nationalized, including banks, foreign-owned firms, and domestic farms.
The proceeds were then used to fund “wealth distribution” schemes, buying him popular support. While these moves were intended to redistribute wealth, they instead led to inefficiencies and rampant corruption.
Government ownership of private enterprises disrupted the market economy. Chávez introduced price controls on basic goods to make them affordable for the poor.
However, these controls led to widespread shortages as producers could not cover their costs, causing decreased production and an explosion of black market activities.
Chávez’s government-funded extensive social programs through oil revenues. While these programs initially improved living standards for many, they were not sustainable.
As oil prices fell, the government faced budget deficits, leading to increased borrowing and inflation. The state sector had become so inefficient due to subsidies and gross mismanagement that even when the price of oil surpassed $100 a barrel, Venezuela’s economy remained in freefall.
Nicolás Maduro, Chávez’s chosen successor, continued the socialist policies, but the situation worsened under his leadership.
Maduro’s tenure has been marked by hyperinflation which reaching six-digits, mass emigration, and a humanitarian crisis. Destructive socialist policies and the general collapse of the economy led to a collapse of domestic savings and investment, which in turn reduced overall economic output.
The absorption of much of the private sector into the mismanaged state sector eliminated the benefit of diversification, leaving the country even more dependent on oil—a sector which is state-owned, state-controlled, rife with corruption, and which distributes wealth to the political ruling class.
Oil production declined, and then exogenous factors such as a reduction in the global price were effectively the death knell of the economy.
The printing of money to cover budget deficits devalued the currency, wiping out savings and incomes. The government’s inability to maintain infrastructure and public services led to frequent blackouts, water shortages, and deteriorating healthcare.
Hospitals lacked basic supplies, leading to a public health crisis. Facing economic hardship, nearly 8 million Venezuelans have fled the country in search of better opportunities. This exodus further weakened the economy as the workforce shrank.
The economic policies of Chávez and Maduro, rooted in socialist ideology, emphasized state control and wealth redistribution. These policies ignored basic economic principles, leading to inefficiencies and corruption.
By stifling private investment and entrepreneurship, the government hindered economic growth. Nationalized industries became inefficient, and corruption flourished.
All of these problems were homegrown, resulting from the Chávez/Maduro choice to turn the country into a socialist paradise, which now boasts the highest level of undernourishment in Latin America.
In a recent poll, about 25% of participants said they were planning to leave the country, which will certainly mean more illegals entering the U.S. southern border.
In case anyone missed the horrendous effects of socialism/communism on Cuba, Cambodia, North Korea, and Laos, Venezuela should serve as a cautionary tale to American voters to reject socialism.
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