How Venezuela went from a rich democracy to a collapsing dictatorship
vox.com
vox.com
Chávez was an innovator in how he spent money, but he did little to improve how Venezuela actually makes money. He paid no attention to diversifying the economy or investing in domestic production outside of the oil sector. The country relies on imports for many of its most basic goods and services, include food and medicine.
You could probably put the greatest economic minds in the world in charge of a big country like Venezuela and they would still fail to diversify the economy.
Markets are necessary for successful diversification - avoiding shortages and economic collapses when key industries suffer downturns.
I'd say social democracies in Europe have shown pretty conclusively that the way to fund broad social programs to help the poor and middle class is via taxation of market economies. Let a healthy private sector self-organize the production of the economy, and let taxes pay for social programs.
Out of interest, why do you think this is true?
(Edit: Why does this comment have a score of -2? What can I do to improve the quality or relevance of my comments? Will the downvoters explain, please?)
Historically I think it's true because broad central planning has generally led to unstable economies.
I think the Nordic states best figured out how to provide widespread social programs funded by taxation of market economies - with national programs working alongside of self-organizing markets instead of trying to organize production directly.
This has been a common complaint, though it's not without response. As to what variables need to be taken into account, there's been discussion that not every product made would have to be. Here's a comment by "Keshav"[0] on Cockshott's input-output tables idea of economic planning, which came about in 1995:
"On a related note, Cockshott and Cottrell have a number of papers arguing that central planning is feasible with modern computer technology. As I understand it, the algorithm they present (e.g. in “Towards a New Socialism”) does not consider a linear programming problem; rather, it takes as given a target for final goods production (determined elsewhere in their model, which includes some markets for consumer goods) and solve for the gross output levels required to meet this target. They exploit the fact that the input-output structure of the economy is sparse (only a small fraction of the goods in the economy are directly used to produce any single good). Their algorithm’s complexity increases with n*m, where m is the number of direct inputs for each product, which seems manageable even with n=12 billion."
Cockshott talks at length about "The problem of scale" (the one which is your theoretical agrument) in his book in the chapter of the same name, which is downloadable for free as a PDF in its LaTeX glory here[1]. I last read it many years ago and refutations of it exist, though it's worth a read in my opinion.
[0] http://crookedtimber.org/2012/05/30/in-soviet-union-optimiza...
[1] https://www.researchgate.net/publication/299519892_Towards_a...
But that's a very big if.
Furthermore, I'd suggest "If it ain't broke, don't fix it" applies here. We already know markets are good at organizing production, we should use them to do that.
Any social ills that result because or alongside of markets should be addressed directly.
Although not broken (if we're talking in terms of commodity production excluding what is necessary to cure social ills) then it could be greatly improved, though I'm not sure how, or rather, I haven't decided on an answer.
At the moment several firms repeat the same research over and over again in order to research new product development in secret to stay competitive; this is clearly an inefficient use of resources, and this is seen by the fact that there are two government-granted monopolies created in order to sustain this system: copyright and patents, which have come under criticism and scrutiny even from libertarian (Rothbard not Proudhon) authors.
There are also problems relating to how volatile the market is, held to the whim of mostly speculators, with the strong ability to throw out scores of workers onto the streets, depriving them of what they need to survive if not for the chrity of the State.
There is also the problem of nurturing genuine science and the advancement of culture which is hard to commodify; even State-sponsored research projects have their funding pulled if they go off track or try to find results the government doesn't like. This applies doubly for companies. Likewise the artist is controlled not by his own will but by the will of the market, having to restrict himself in materials and creativity in such a way to please rather than to advance culture and indviduality.
There are problems relating to the psychological effect of the market economy on its participants, both workers and capitalists both of which must make it their top priority in life to rack up sufficient money to stay afloat in their respective spheres, compounded with the worker's alienation, that he does not see himself in the products he makes beacuse of the excessive direction of the capitalist.
There is the problem of education in which students must become indebted to the State or a loan organisation unless already having enough capital on their parent's side in order to pursue education which in many cases is necessary to land a job, some of whose wages go back to repaying that debt; a student thus finds it is in his interest to optimise for a degree which will land him a job, regardless of his passions and interests - if this does not crush individuality, what does?
Then there is the effect on our human nature, the system which encourages greed at almost any cost in order to rack up capital, forcing our nature to see people as means to an end rather than people in themselves, I will relate this to the idea of commodity fetishism which proposes that rather than seeing the distinctive labour content of commodities, people only see the commodities themselves, focusing on the exchange value rather than the utility. People must search for social connection through commodities while ignoring the massive wastage and environmental damage that their production takes.
Relations between people are swapped by relations between commodities, although we see that capitalism has very greatly increased standards of living, its effect on quality of life is often ignored at the expense of the freedom to buy whatever goods one pleases, this freedom is taken to be the only important element of a society but close investigation reveals that it is a very hollow freedom.
I have avoided talking about sweatshops for they are an unfortunately contentious issue, but I hope that can be included in my analysis.
I probably haven't explained this very well, so here is a short list of books, mostly be Marxist or neo-Marxist authors who, rathear than focusing on Marx's primary mode of attack (exploitation via extraction of surplus value) they look at other elements of capitalist society:
- Guy Debord - Society of the Spectacle (philosophy-economics): https://www.marxists.org/reference/archive/debord/society.ht...
- Herbert Marcuse - One Dimensional Man (sociology): https://libcom.org/files/Marcuse,%20H%20-%20One-Dimensional%...
- Erich Fromm - Escape From Freedom (social psychology): https://libcom.org/library/escape-freedom
- Habermas - The Structural Transformation of the Public Sphere (sociology-history) - https://en.wikipedia.org/wiki/The_Structural_Transformation_...
- Peter Kropotkin - The Conquest of Bread - https://theanarchistlibrary.org/library/petr-kropotkin-the-c...
I read biographies on Cleopatra and Julius Caesar a couple years back and was amazed how much planning went into Egypt's economy.
The similarities to Venezuela can be pretty interesting! In the ancient world when economies were highly reliant on wealth created by agriculture, the Nile delta was the most fertile land in thousands of miles in any direction. Each year the Nile flooded predictably. When irrigation was plentiful, all of Egypt prospered. When the Nile went through a dryer year, all the peasants working the land starved.
Excellent reference!
USSR industrialized itself very quickly. China had some success and did not shut down its central planning but hybridized it. South-Korea's steel production is an example of success in state-planning that contradicts market logic. Depending on your metric for success, you can also cite Cuba's life expectancy as it planned to become a medical nation.
Central planning fails when you have to invent new things. New services, new products can't be planned. Very few anticipated internet, almost no one expected cell phone and then smartphones to be that prevalent.
But do not throw away central planning as a systematically failed decision process. It works for :
- big scale infrastructure projects that require little innovation. - wars - big research programs: Apollo, Operation Manhattan
Actually, I think that with a public funded, government-supported centrally planned program, we could have deployed a self-driving cars network as early as the 90s.
The space program is a great example. Could the US have beaten the USSR to the moon without private suppliers like IBM? IBM couldn't exist in a centrally planned economy, and the Apollo missions wouldn't have been successful without private suppliers like IBM.
Apollo, Manhattan, WWII and South Korea via the Korean War and post-war American influence are all great examples of successful government programs, but I don't know that any of them would have happened without US markets providing funding and infrastructure. Ford was building a Sherman tank every 90 minutes during WWII.
There's probably a tipping point where large programs like these extract so much value from the markets that fund them that those markets cease to function, which is probably why wars are often funded with debt instead of direct taxation.
Intelligence is scarce, honesty too and information is often only partial. Some decisions are better done at a local scale.
I believe that NASA would have designed computers even without IBM. Possibly even faster but it would have been a tailored computer that would have been very expensive and of little civilian application.
We see it now with SpaceX: NASA sucked at cutting costs. But it excelled at skipping steps and it put a man on the moon in 1969, a goal that vastly outpaced the private space industry, that did not even exist at the time. The whole space industry was quickstarted by this centrally planned effort.
My personal opinion is that the red line that a state should not cross lest it has a complete information and huge stash of intelligence to process it, is price setting. It can have, for many things, a target and try to enforce it (in the case of oil, through some sales quota for instance) but it should use failure to achieve these targets as an indication that it misses some information about the economy or that its incentives are insufficient.
You don't have to guess at this - just look at the Soviet space program.
In large projects, you generally have a major single, measurable goal (interstate highways, a man on the moon, a nuclear weapon) and may have lots of little milestones and spinoffs along the way.
An economy is millions of little goals - some complementary, some competitive - that might add up to something larger but no one knows. But most of are okay with it because some portion of those people will be able to meet their goals and strive for bigger ones.
The argument for capitalism is that _no single entity can do this_ planning. It's not as if capitalist economies have a 'capitalist planner' who's better at planning that the socialist planner. Capitalist economies don't have one person - or agency - in charge of planning or shaping the economy. Bottom up, not top down.
Another way to express this which lacks the apparent contradiction is: their socialist policies inhibited the natural tendency of the economy to reshape itself.
However the real problem in Venezuela was not "socialism" per se nor a lack of diversification -- in fact several countries, particularly Brazil and Argentina, experienced problems when they tried to forcibly diversify their economies (Peronism/import substitution), whereas Chile went all in on copper, and while they've suffered downturns, their long-run growth has more than made up for it, making them today the richest country in Latin America. And precisely this pattern (comparative advantage) is how capitalism usually succeeds, and Chile today is diversifying at a natural/gradual pace. But in Venezuela the biggest problem was that Chavez appointed his friends to run the oil companies, and refused to cooperate with the previous administration and employees of the oil companies, which resulted in a lot of skilled people in Venezuela's oil industry taking their ball and going home. In other words, the problem was not that Chavez was a socialist but that he was a strongman who had no respect for democracy, the rule of law, or the desires of anyone but himself, which was also reflected in his later attempts to silence his critics in the media and to sabotage the Venezuelan Constitution and its legislature. I think this is why we've seen post-Chavez socialists like Mujica and Moreno taking a more measured approach to economic reforms and working with, rather than against, preexisting institutions.
I'm not entirely sure what you're saying.
If you're saying that no pro-capitalist government could have diversified Venezuela's economy, then I completely agree with you.
If you're saying that nurturing a market economy in Venezuela would have failed to diversify it's economy, then I have to disagree.
Markets tend to diversify on their own as entrepreneurs recognize new demand and respond to meet it. Because of the limitless variables that drive how this happens in different regions and industries in any given country, government administrators are not well suited to recognize and respond to such needs at a national level.
Government should instead cultivate market economies that produce economic surplus, and then tax some percentage of that surplus to provide the social programs their citizens request.
https://www.bloomberg.com/news/articles/2005-08-21/online-ex...
Much of the economic growth happened in special economic zones that were free of much of the state economic control present in the rest of China.
Also, tight control can be consistent with market freedom when it is targeted at controlling violent crime, kidnapping and extortion. This is one area where China has outperformed other developing countries.
If you want to discuss the merits of a specific regulation, tax or social program, I'm happy to do that, but I haven't addressed any of those things as of yet.
Since China switched to a market economy, a huge chunk of their massive population has escaped poverty. Some of those markets are highly regulated, but they are still markets. Nothing about China's recent growth is incompatible with the views I've expressed in this thread thus far.
"free" would seem to exclude regulation that increases market competition but would not seem to exclude subsidies that might decrease competition. All of the benefits of markets come from competition, not "free"-ness.
Then how would you explain the lack of diversification that survived through all previous regimes before the Bolivarians?
The problem occurs when the private sector is so overwhelmed by greed (always) that decides to make social programs part of their market, as can be seen in real time as they try to privatize NHS in the UK.
But those problems are small compared to widespread food, medicine and energy shortages.
And then when the political class is strong enough to counter it, it inevitably turns to tyranny because it enriches the political class in the short term.
Income inequality is always parroted as the measurement for a healthy economy, but as my previous point suggests it’s not the end be all.
America’s poor are rich in comparison to other countries’ poor. It’s a perception problem, even for the citizens of UAE (forgetting the second class workers for a minute). There’s going to be the random citizen who only owns 3 Ferraris and a small penthouse in London, while some others have 20 cars and two mansions in London and NYC.
There will always be those with less.
Not according to the World Bank or the CIA. At least not 5-6 years ago.
The World Bank had Venezuela's Gini coefficient at 44.8% in 2014 vs %40.8 in the US. The CIA has the number at 39.0% (2011) vs 47% in the US.
This happened before in Venezuela in the 80s/90s and eventually led to Chavéz getting into power.
That said, Venezuela is far from a centrally planned economy.
Venezuela is a shitshow, to put it bluntly. But the shallow analyses which focus purely on ideology instead of the physical reality on the ground is asinine, bordering on propaganda (Vox tends to swing randomly between center-left progressivism and center-right neoliberalism). Is the government of Venezuela incompetent? Probably as incompetent as most. Are they dealing with an unprecedented economic collapse caused by structural factors? Yes. On the other hand, most people don't actually know how the Venezuelan economy is structured. They just know "socialism bad" and "capitalism good". It's tiresome because the same structural deficiencies at play in their economy today was there decades ago, when they weren't "socialist".
It should be noted what happens to countries whose economies collapse because their place in the world economy no longer exists and then seek to renormalize via the accepted capitalist channels (like the IMF and the like). The entire country gets sold off to foreign interests and they spend the rest of their decades financing a debt they can never pay off.
As for the repressiveness of the Venezuelan state, it's not surprising. The violence of a state is directly proportional to how threatened it feels. When a state is failing, it is going to be violent. Cf. Spain and Catalonia at the moment.
Oil Prices in 2012: https://www.eia.gov/todayinenergy/detail.php?id=9530
Food Shortages in Venezuela in 2012 Source from NYT:
http://www.nytimes.com/2012/04/21/world/americas/venezuela-f...
#First_Dutch_Disease #Second_Dutch_Disease #Third_Dutch_Disease
But what about free markets? Why don't they just have free markets? This alternative is just pure rhetoric hardly explicated in its material form: Sell the country off to international corporations, saddle your country with unmanageable debt, and beg the international financial system to keep you alive so long as you have resources worth extracting.
Honestly, it would be fine if people were just forthright in proposing those policies. It's always dressed up in the language of freedom and liberty in the most dishonest way. Venezuela is failing now, I can point to several other nations that did exactly what they were supposed to according to the interests of Capital, and they aren't looking so hot either.
That's not true at all. The previous government was socializing the economy, starting with nationalizing oil in 1976. From Wikipedia: "The election of Carlos Andrés Pérez in 1973 coincided with the 1973 oil crisis, in which Venezuela's income exploded as oil prices soared; oil industries were nationalized in 1976. This led to massive increases in public spending, but also increases in external debts, which continued into the 1980s when the collapse of oil prices during the 1980s crippled the Venezuelan economy. As the government started to devalue the currency in February 1983 to face its financial obligations, Venezuelans' real standards of living fell dramatically. A number of failed economic policies and increasing corruption in government led to rising poverty and crime, worsening social indicators, and increased political instability."
"After Pérez initiated such liberal economic policies and made Venezuelan markets more free, Venezuela's GDP went from a -8.3% decline in 1989 to growing 4.4% in 1990 and 9.2% in 1991, though wages remained low and unemployment was high among Venezuelans.
Some state that "neoliberalism" was the cause of Venezuelan economic difficulties, though overreliance on oil prices and a fractured political system without parties agreeing on policies caused much of the problems."
Though after dismissing a lot of Chavists as conspiracy-theorists, I have seen some outrageous mistranslations and downright lies about Venezuela from the anti-Chavist side, taken uncritically by western media as factual, I am now very careful about sources there. There is a very active propaganda on both sides there.
In a country with the largest oil reserves in the world and an underdevelopped oil industry, I doubt that free market forces would naturally tend to diversify the economy. On the contrary it would lead to increased investments there. I would like to remind that under Chavez, his centrally planned economy was criticized for hindering the oil sector development.
The other ranking where Venezuela is high is corruption. That is the problem you want to solve first. High corruption, under free market or centrally planned economy, is not going to lead to good outcomes.
Forget the economic model, it is the justice and democratic model that is important.
There were plenty of petro-states which didn't see the kind of economic devastation Venezuela did when oil prices plummeted. The key difference was that other petro-states had a robust private sector, which not only meant they had more private savings that halped the economy absorb the shock from low oil prices, but also meant they were more diversified.
The drop in oil prices should never have led to mass malnutrition. Venezuela even with low oil prices is a middle income country. It was socialist policies like price controls that led to the long food lines and empty supermarket shelves.
>>An exacerbating factor is that the same forces that tried to coup Chavez in 2002 are of course still politically active and, rationally given their interests, using their economic connections to exacerbate the economic collapse through various means. The United States recently freezed some Venezuelan government finances which is obviously intended to further destabilize the government.
This is what the Venezuelan government is blaming its economic problems on, but there is actually no evidence at all that the intervention of the US government is anywhere near enough to be responsible for any significant portion of the economic decline of Venezuela.
There are no significant sanctions on Venezuela and the US imports much of its oil from the country.
Price controls aren't really a Socialist policy - the Socialist policy in this case would be the gradual change from the production of commodities to the production only of use-values, lacking their exchange value dimension. If price controls are a Socialist policy, then it doesn't take much for Socialism to come about - but that's clearly not what Socialists are talking about when they talk about Socialist policy. Marx, for one, wasn't in favour of price controls to my knowledge. Nor were the other Socialist economists and theorists. I'm not sure where you're getting the idea from other than the oft-repeated myth that Socialism is merely when the government "does stuff".
>>“It is impossible, within the framework of the capitalist system, to solve the grave problems of poverty of the majority of the world’s population,” the Venezuelan leader said. “We must transcend capitalism. But we cannot resort to state capitalism, which would be the same perversion of the Soviet Union. We must reclaim socialism as a thesis, a project, and a path, but a new type of socialism, a humanist one which puts humans and not machines or the state ahead of everything."
Socialism is always one execution away from utopia.
I don't think that what politicians claim is a sound method to understand the definition of something, especially when we _do_ have the definition already (again, what Marx described).
Just because Chavez made claim X, that doesn't mean that the original definition is somehow altered.
And remember, your original claim was that price controls are socialist, which still doesn't make sense; pivoting to something Chavez said doesn't correct this.
I am no fan of what Venezuela or Chavez is doing, and I don't support their policies.
If you want an example of something that is more faithful to what Marx described, take a look at the Mondragon Corporation, https://en.wikipedia.org/wiki/Mondragon_Corporation which is a competitive worker cooperative based in Spain. Notice that this has nothing to do with the government.
>>I'm not sure where you're getting the idea from other than the oft-repeated myth that Socialism is merely when the government "does stuff".
When Venezuela's economic ministers say things like "the law of supply and demand is a lie" to justify price controls, I assume it's motivated by their socialist ideology, and blame the policy on that ideology.
They can't be very good Socialists then; Marx was a supporter of the law of supply and demand, and its functioning is extremely obvious to anyone familiar with the idea of markets, even without training. Marx didn't deny it nor did his contemporaries or predecessors.
>I assume it's motivated by their socialist ideology, and blame the policy on that ideology.
The North Korean statesmen have made disparaging remarks about democracy, but they claim to be democratic. Yet we would both agree not to blame democracy for what is happening in North Korea. Is there any evidence that Venezuela is actually implementing Socialist policy any more than the DPRK is implementing democratic policy?
I don't want to appear pro-Chavez, many of his actions were despicable. But understand that "free-market" in their case means an economy controlled by USA. Chavez came into power precisely because the free-market economy before him failed to raise wages even as the GDP increased. It also failed to diversify.
Economically, Venezuela has two problems: over-reliance on oil and corruption. In 2017, we can consider it proven that neither central planning, nor free-market have succeeded alone in solving these problems. They are mostly orthogonal to the organization of the economy.
Politically, it has one problem: they don't like USA. Look at Saudi Arabia. They are centrally planned and they are extremely dependent on oil. But things go well economically. You just have to let US companies install themselves there and don't call yourself a socialist.
Why can't a free market diversify Venezuela's economy? Well when you have the world's biggest proven oil reserves (yes, more than Saudi Arabia since a few years) and an underdeveloped oil sector, where do you expect investments to flow?
You can redirect some of these investment by giving the government an amount of control over what the oil industry does, by putting quotas in place, this kind of things. But then, you are opposed by "the free world".
IOW, in case it's not clear, Venezuela failed because of socialism. It's hilarious to see all these long winded explanations that refuse to name the well known philosophy that has repeatedly led countries to the same place. There is no analysis needed. It has been analysed a hundred times already in history.
Suppose I fell off from a hundred story building and died. Now imagine newspaper articles going into gravitational theory and saying that the cause of death was a high speed impact with the ground, which was worsened because it was concrete. That would be stupid. The well known fact is that I died because I fell from a high place. You don't need an analysis for that. It's obvious. Once a phenomenon has been explained and analysed well enough, it can just be named and you need not go into a lot of details and develop your own theory. You can just reuse the name and everybody understands.
https://venezuelanalysis.com/analysis/10112
ps. Here is decent doc by John Pilger synopsising the US's history of interventionism. (Starts at about 38 mins, before that is some stuff from Venezeula from 2007)