Venezuela’s Failures Should Be a Warning About State Socialism

If one was to search for an example of how a socialist state can go wrong, Venezuela provides a fitting depiction. With the world’s highest inflation rate – predicted to reach 500% by the end of the year – and the economy shrinking by 5.7% in 2015, things do not look good in a country where nearly two decades of economic socialist mismanagement is causing severe problems.

The problems are simple, so simple as to wonder why they didn’t see it coming. The most prominent cause of issue has been the sharp fall in the price of oil, which is a staggering 95% of Venezuela’s exports. The price drop from $88 a barrel in 2014 to $35 a barrel in May of this year, has seen the government’s revenue slashed. The danger of putting all your eggs in one basket is evident, and Venezuela’s undiversified economy has caused disastrous effects for the Venezuela’s economy and its people. With its reduced revenue, and the rise in inflation making imports more expensive, the government has been unable to import the basic essentials that its people require.

This has led to savage shortages of essential items. Queues starting during the night are common, smuggling of goods into neighboring Columbia is estimated to be 40% of Venezuela’s production, and the black market for basic goods is immense. The cause for this lies further back than the dip in the price of oil however. Government price controls, introduced for basic items by Chavez back in 2003, are the real origin of the shortages. Introduced at a time of increasing poverty so that the poor could afford basic items (and increase the popularity of Chavez), the new measures forced producers to either continue while making a loss, or simply stop producing.

This resulted in the government looking to imports to cover the domestic shortfall in essential items. As such, since the loss of revenue from oil exports began, the shortages of essentials have become so severe that in 2014, the government introduced fingerprinting in shops and required ID cards to be shown when purchasing items in an attempt to stop people over-buying. The sad irony is that none of the products that the government deems essential enough to price fix, are available. The shortages have even driven people to steal horses from zoos for meat, as well as zoo animals themselves starving to death.

As well as food, services have been rationed and reduced. Water and electricity are rationed, offices are only open two and half days a week, and public schools are not open on a Friday – all in an attempt to reduce Venezuela’s electricity bill. President Maduro has even asked women to air dry their hair rather than use a hair dryer. The President has also been highly critical of the black market that has risen out of Venezuela’s price fixing. A subsidised tanker of petrol worth $100 in Venezuela, due to price controls and the lack of a free market, can be sold for $20,000 over the border in Colombia, and suppliers will always work in their best interests by selling their products straight to the black market where they can earn more.

And all the while, more people slip into poverty and violent crime rockets. Homicide rates are now only second to Honduras in the world. The poverty rate was at 32% at the end of 2013, and is now estimated at around 80%. These are the brutal consequences of a planned socialist economy.Venezuela Fig 1Venezuela Fig 2

But it is not just economic woes that cripple Venezuela. The political structure means ousting President Nicolas Maduro and his United Socialist Party of Venezuela is very difficult. A recall referendum to remove Maduro is consistently hampered by Maduro and his party. For it is well in their best interests to delay any chance of a recall referendum until after 10th of January 2017, at which point the removal of Maduro would see his presidency taken by the vice president, Aristobulo Isturiz, but crucially the party would remain in power. The National Electoral Council (CNE) have been accused by the opposition of favouring Maduro, and purposefully delaying the vote. Frustration is mounting on the streets as well as in the opposition at the inability to bring Maduro to account.

Perhaps the cherry on the top of Venezuela’s mess is the $71 million it owes to British money printing company De La Rue, who Venezuela asked to print 10 billion notes back in 2015. But with inflation rising as such rapid levels, it is a wonder whether Venezueula will even have enough money to buy the new bills it needs to match its level of inflation. Printing more bill is certainly not going to fix Venezuela’s runaway rampant inflation. All these problems, and the dire economic situation which faces Venezuela and its people, are the results of the socialist agenda and governmental control of the economy. The logical progression is easy to follow and should serve as a clear example to all of the dangers of state control of markets.


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