Upon Hugo Chavez death in 2013, and before the collapse in oil prices, Salon published an article titled “Hugo Chavez’s Economic Miracle” that praised the success of his brand of socialism. Salon was far from alone. Numerous left-leaning pundits and celebrities, and even some very influential economists, have held up Venezuela as a rare example of a successful socialist economy.
For example, in a 2007 speech sponsored by the Bank of Venezuela, Joseph Stiglitz — 2001 recipient of the Nobel Prize in Economic Sciences and former senior vice president and chief economist of the World Bank — claimed that “Venezuela’s economic growth has been very impressive.” However, a new academic study reveals that Venezuela’s economic performance during Chavez’s tenure as president was far from impressive.
Economists Kevin Grier and Norman Maynard use a sophisticated synthetic control methodology to compare how Venezuela performed under Chavez to how it should have been expected to perform based on similar oil producing and Latin American economies that did not also change to socialist economic policies. Rather than an economic success, they find a chronically underperforming economy.
After Chavez’s first five years, they find that Venezuela’s income per capita was more than $3,500 below what should have been expected. Even during the subsequent oil boom, its income per capita never closed to within $2,500 of its predicted value.
Grier and Maynard also find that Chavez’s socialist policies did not simply sacrifice economic growth in favor of redistributive policies that helped the poor. They find that neither poverty rates nor health outcomes improved more than they should have been expected to improve without the changes in policy. To the extent that inequality declined, they find that it largely occurred by reducing the income of the wealthy, rather than by increasing the income of the poor.
The global oil boom simply allowed Venezuela, which sits on the world’s largest proven oil reserves, to mask many of the harmful effects of Chavez’s socialist economic policies. Now that oil prices have collapsed, so has Venezuela’s economic performance.
The recent actions of the government’s “consumer protection agency,” Sundde, illustrate why the economy is collapsing. The agency dictated that retailers reduce the price of a range of goods by 30 percent in early December, despite the country’s recent experience with high inflation rates.
When the agency deemed that Kreisel, a toy distributor, had too high of a mark-up margin, officials seized nearly 4 million toys from the warehouse to redistribute to the poor. This action might have made some toys freely available this past Christmas but it also destroyed the incentive for any company to attempt to provide toys next holiday season.
Some will surely object that this example is trivial in light of the broader issues facing Venezuelans, but what happened to Kreisel has happened in many industries. The Venezuelan government fixes prices, while constantly inflating its currency, and then seizes products and jails producers, who try to maintain profitable production by charging market prices.
As a result, the production of everything has collapsed. I recently spent a week in Cucuta, on the Colombian-Venezuelan border, and observed this collapse directly. Thousands of Venezuelans crossed the two bridges joining these countries on foot each day to buy essentials in Colombia that are unavailable in Venezuela.
I met a couple from Cuidad Bolivar, who had traveled for three days to get to the border. They had come to buy rice, medicines, car parts and toiletries for their family. They have been making the journey approximately every three months. Their story was not uncommon.
There is no need for Venezuelans to be poor. In 1980, as measured in the Economic Freedom of the World Annual Report, Venezuela ranked the 14th-freest economy in the world and it had one of the highest standards of living in Latin America. Then, as its economic freedom declined, so did its prosperity. After its embrace of socialism under Chavez, only the oil boom could delay its complete collapse.
Yet, there is reason for some optimism. In recent years, many countries in Latin America, including Argentina and Brazil, have moved away from populist and socialist policies and begun to embrace economic freedom. If Venezuela follows their lead, it could resuscitate its economy and eventually return to prosperity.
Hello on Fri, 20th Jan 2017 9:25 am
Dude. You should not poste such things of truth here. On this forum there’s only 3 accepted explanations for everything
1. it’s all America’s fault
2. If it’s not America’s fault it’s because of PO
3. If it’s not because of PO, jump to 1
dave thompson on Fri, 20th Jan 2017 9:51 am
Venezuela is a prime example of a country not following the corporate neo-capitalistic imperialism of US led colonialism.
Roger on Fri, 20th Jan 2017 9:53 am
This is too simplistic.
The socialist economies like Sweden and Denmark seem to do just fine, especially in terms of its people being happy. And with their tax rates, it would be ludicrous to equate such people with being “free” — more like government takes care of lots of peoples’ needs (without so much corruption it ruins things).
It’s more complex than saying “Socialism=bad”.
And I’m a US libertarian leaning capitalist at heart. But I’m willing to look at data and results. Economics has LOTS of inputs that impact results in the short term.
Sissyfuss on Fri, 20th Jan 2017 9:54 am
Having the govt control the economy is a bad idea you say. Does Trump know this?
onlooker on Fri, 20th Jan 2017 10:18 am
Venezuela’s woes are due to a number of things. A badly run Economy, the price of oil, the neglect of the Farming Industry, probably a greedy elite and certainly some meddling by the Empire ie. US.
rockman on Fri, 20th Jan 2017 10:35 am
Roger – True but one also point out that not all socialist economies are the same. My one first hand experience: years ago chatting with the chief engineer of a inland cruise ship in Canada. Paid a very high tax rate. But in the 6 month off season the govt sent him a monthly check for about 75% of his normal salary. I suspect the Nordic systems are similar. But now with massive immigration of many poorer folks we’ll see how they hold up in the future.
The obvious problem with some socialist system is when the number of low income citizens draw much more from the govt then it collects from the wealthier citizens. But Venezuela got by early on by nationalizing the oil industry since it didn’t have enough wealthy folks to ding.
It would be so bad today if it had not done the same thing Mexico did: didn’t not roll enough capex back into the industry to keep it growing. Venezuela would have much more revenue today despite lower oil prices had it done so. Not it has to cut less the favorable deals with China to finance the rebuild effort.
yoshua on Fri, 20th Jan 2017 11:58 am
Socialism is good. More socialism coming to your neighborhood… until it doesn’t… and then it’s: Take care of your self!
efarmer on Fri, 20th Jan 2017 1:07 pm
The old duality war of capitalism and socialism is a poor forced option premise IMHO. Chavez was a despot who dismantled his nation to remain in power. Despotism is the more correct “ism”. The is no law of “isms” that says you only get to pick two at a time.
GregT on Fri, 20th Jan 2017 1:54 pm
Socialism, Not Oil, Is The Cause Of Venezuela’s Problems
“Ten years from now, twenty years from now, you will see: oil will bring us ruin… Oil is the Devil’s excrement.”
Juan Pablo Pérez Alfonzo (13 December 1903 – 3 September 1979), was a prominent Venezuelan diplomat, politician and lawyer primarily responsible for the inception and creation of OPEC.
https://en.wikipedia.org/wiki/Juan_Pablo_Pérez_Alfonzo
Mr. Pockets on Fri, 20th Jan 2017 2:54 pm
oh, now I see:
“Benjamin Powell is a senior fellow with the Independent Institute, director of the Free Market Institute and professor of economics at Texas Tech University, …”
Anonymous on Fri, 20th Jan 2017 3:33 pm
Yes, the source is incredibly biased, and self-serving. Venezuela, its peoples, government, have been under sustained attack by washingdum, with plenty of help from its local agents for years. No doubt the writer is frustrated that Venezuela remains free of washingdums control. The uS might have succeeded at that by now, if not for the fact it has committed the bulk of its resources to trying to change the governments of Syria, Ukraine, Russia and China, amoung others.
Sorry rocky, I know you would love to see Venezuela ruled by uS oil corporations but the people there have other ideas. I mean, its working so well for amerika right? Maybe the people of venezuela are stoopid or something? Keep voting the wrong way is it?
As for your fable of the ‘engineer in Canada’, you likely just made that shit up too. Ive never heard of anyone, getting 3/4 of their pay from the ‘govt’ for 1/2 the year. The regime here is hardly ‘socialist’, its actually hard-core neo-liberal and has been for most of the last 50 years at least. ‘Canada’ is a uS energy\resource colony and its leadership tows washingdums\tel avivs line on everything from foreign policy, to trade, and almost everything in between. Maybe you define any country that doesn’t have open carry laws as ‘socialist’, who knows?
Better luck next time rockyman…..
Hubert on Fri, 20th Jan 2017 9:51 pm
Failure of Socialism + Communism = 100%
banjo on Sat, 21st Jan 2017 12:36 am
So using this so called professors simple logic Haiti’s economic woes are because of Capitalism?
Anthony on Sat, 21st Jan 2017 1:38 am
Banjo, your argument has no foundation. Haiti is an over populated country, poorly educated country with virtually no natural resources. Get rid of corruption and allow the market to operate in a reasonably manner and it may be better off but will not overnight become rich.
What attack Anonymous? Is that easy to sabotage a country’s economy from afar. Although there may have been some meddling that is a feeble excuse to blame the US!
And what socialism being blamed for is not just taxing people highly, it is not letting the markets work at all – it is about the government trying to run every industry. Taking that road is guaranteed to fail and has never worked anywhere in the world!
Anonymous on Sat, 21st Jan 2017 4:26 am
Sorry dude, but Venezuela IS under attack, has been for some time now. Your bloviating about ‘markets’ is just a red herring. Besides, what business is it of ours, mine, yours, to tell others how they should run their economies, or societies anyhow? Amerika is no model for the fair distribution of wealth, or resources. In fact, much of current ‘wealth’, amerikans enjoy so much, mostly comes from the theft and siphoning of a disproportionate share of the world’s resources.
Amerika, the CIA, and its color-revolution, regime-change industrial complex should just leave those people be. They would face a challenge even w/o washingdums attacks.
Cloggie on Sat, 21st Jan 2017 5:32 am
Banjo, your argument has no foundation. Haiti is an over populated country, poorly educated country with virtually no natural resources. Get rid of corruption and allow the market to operate in a reasonably manner and it may be better off but will not overnight become rich.
You are missing the single most important reason why Haiti is poor and always will be, your naivete is breathtaking. The best thing that can happen to Haiti is being colonized again by a society that operates on a higher level. Africa, same story.
banjo on Sat, 21st Jan 2017 11:10 am
Hahahaha thanks Anonymous and Coggie! You are of course both 100% correct.
banjo on Sat, 21st Jan 2017 11:12 am
I wanted to say Anthony NOT Anonymous. NB: an edit button would be nice.
JR on Sat, 21st Jan 2017 9:57 pm
This article uses claims made from economist. What else would you expect, except more capitalistic bullshit?
Fuck these assholes. All of them.
Wildbourgman on Sun, 22nd Jan 2017 12:35 pm
The socialist vs. capitalist debate is fairly silly at this point. The few supposed socialist countries that are shining examples aren’t completely socialist and they are often not comparable for many reasons to failing supposed socialist countries. Also where can you find a truly capitalist country?
My bottom line is that true full blown socialism doesn’t really work on paper because there are far too many inputs to accommodate and it leaves out human nature. Capitalism can work on paper because you don’t have to capture the inputs that just happen. That’s the “invisible hand” that lefties like to make fun of. Human nature especially greed is accommodated in the markets because true greed, arrogance, jealousy, and envy rarely goes unchecked by some form of punishment. But like I say we don’t have true capitalism or socialism, so the entire discussion is just that, it’s talk.
onlooker on Sun, 22nd Jan 2017 1:35 pm
Those denying the tampering of the US in all the affairs of its continent is obviously very ignorant of the deep state policies and methods.