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How Venezuela went from a rich democracy to a collapsing dictatorship

txmx2000 9y ago
Socialism.
legulere 9y ago
Venezuela is simply suffering one of the worst cases of Dutch Disease in the world. The oil prices don't keep up with the spending. With a destroyed economy there is more opportunity for a dramatic system change. This happened before in Venezuela in the 80s/90s and eventually led to Chavéz getting into power.
- 0x27081990 9y ago
  If their economy wasn’t centrally planned and controlled by the government, it would be more resilient
  - ue_ 9y ago
    That's true, I think that Socialists should abandon older and rigid methods of central planning; research has been active within the Socialist community for finding new methods of planning, such as the work of Paul W. Cockshott. That said, Venezuela is far from a centrally planned economy.
  - danharaj 9y ago
    This same thing happened under a more liberal capitalist government before. That's literally how Chavez got into power. The biggest difference between then and now is the severity of the oil price drop. 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. 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.
    - sremani 9y ago
      A quick refresher for my liberal friends, Oil Prices in 2012: https://www.eia.gov/todayinenergy/detail.php?id=9530 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-faces-shortages-in-grocery-staples.html?mcubz=3 http://www.nytimes.com/2012/04/21/world/americas/venezuela-f...
      - danharaj 9y ago
        https://en.wikipedia.org/wiki/History_of_the_Venezuelan_oil_industry https://en.wikipedia.org/wiki/History_of_the_Venezuelan_oil_... #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.
      - 0x27081990 9y ago
        They closed import/export for the private sector. Only federal government handles it. Which led to export just oil (inefficiently if I may add), so when priced collapsed they had to decide if pay debt and face hunger, or fight hunger and face a financial default. Guess which one they decided?
    - lend000 9y ago
      > This same thing happened under a more liberal capitalist government before. That's literally how Chavez got into power. 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."
  - Iv 9y ago
    It would also be more vulnerable to the influence of the US behemoth, the oil-hungry giant that considers south-America its sphere of influence. 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".
timb07 9y ago
I hope Trump doesn't read this article as a how-to guide.
- dingo_bat 9y ago
  I think that Trump is the last person to look at socialism as a manual. That man maybe one of the most capitalistic person in the world.
padobson 9y ago
I thought this paragraph was the most enlightening: 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.
- ue_ 9y ago
  >Markets are necessary for successful diversification - avoiding shortages and economic collapses when key industries suffer downturns. 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?)
  - padobson 9y ago
    Theoretically I think it's true because there are far too many variables at play in economies of any decent size for a national government to efficiently organize it. 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.
    - ue_ 9y ago
      > Theoretically I think it's true because there are far too many variables at play in economies of any decent size for a national government to efficiently organize it. 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-optimization-problem-solves-you/#comment-415949 http://crookedtimber.org/2012/05/30/in-soviet-union-optimiza... [1] https://www.researchgate.net/publication/299519892_Towards_a_new_socialism_Cockshott_and_Cottrell https://www.researchgate.net/publication/299519892_Towards_a...
eighthnate 9y ago
Declining oil prices and US sanctions.
everyone 9y ago
Taking the long view, the US and its interventionism is to blame for a lot. https://venezuelanalysis.com/analysis/10112 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) https://vimeo.com/16724719 https://vimeo.com/16724719
dingo_bat 9y ago
Venezuela failed because of the lack of a free market. Almost all economic activity was by the government, there were price controls on everything. It turns out the market is much more efficient in managing resources than any one organisation. 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.

txmx2000 9y ago

Socialism.

Venezuela is simply suffering one of the worst cases of Dutch Disease in the world. The oil prices don't keep up with the spending. With a destroyed economy there is more opportunity for a dramatic system change. This happened before in Venezuela in the 80s/90s and eventually led to Chavéz getting into power.

0x27081990 9y ago
If their economy wasn’t centrally planned and controlled by the government, it would be more resilient
- ue_ 9y ago
  That's true, I think that Socialists should abandon older and rigid methods of central planning; research has been active within the Socialist community for finding new methods of planning, such as the work of Paul W. Cockshott. That said, Venezuela is far from a centrally planned economy.
- danharaj 9y ago
  This same thing happened under a more liberal capitalist government before. That's literally how Chavez got into power. The biggest difference between then and now is the severity of the oil price drop. 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. 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.
  - sremani 9y ago
    A quick refresher for my liberal friends, Oil Prices in 2012: https://www.eia.gov/todayinenergy/detail.php?id=9530 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-faces-shortages-in-grocery-staples.html?mcubz=3 http://www.nytimes.com/2012/04/21/world/americas/venezuela-f...
    - danharaj 9y ago
      https://en.wikipedia.org/wiki/History_of_the_Venezuelan_oil_industry https://en.wikipedia.org/wiki/History_of_the_Venezuelan_oil_... #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.
    - 0x27081990 9y ago
      They closed import/export for the private sector. Only federal government handles it. Which led to export just oil (inefficiently if I may add), so when priced collapsed they had to decide if pay debt and face hunger, or fight hunger and face a financial default. Guess which one they decided?
  - lend000 9y ago
    > This same thing happened under a more liberal capitalist government before. That's literally how Chavez got into power. 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."
- Iv 9y ago
  It would also be more vulnerable to the influence of the US behemoth, the oil-hungry giant that considers south-America its sphere of influence. 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".

timb07 9y ago

I hope Trump doesn't read this article as a how-to guide.

dingo_bat 9y ago
I think that Trump is the last person to look at socialism as a manual. That man maybe one of the most capitalistic person in the world.

padobson 9y ago

I thought this paragraph was the most enlightening: 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.

ue_ 9y ago
>Markets are necessary for successful diversification - avoiding shortages and economic collapses when key industries suffer downturns. 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?)
- padobson 9y ago
  Theoretically I think it's true because there are far too many variables at play in economies of any decent size for a national government to efficiently organize it. 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.
  - ue_ 9y ago
    > Theoretically I think it's true because there are far too many variables at play in economies of any decent size for a national government to efficiently organize it. 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-optimization-problem-solves-you/#comment-415949 http://crookedtimber.org/2012/05/30/in-soviet-union-optimiza... [1] https://www.researchgate.net/publication/299519892_Towards_a_new_socialism_Cockshott_and_Cottrell https://www.researchgate.net/publication/299519892_Towards_a...

eighthnate 9y ago

Declining oil prices and US sanctions.

everyone 9y ago

Taking the long view, the US and its interventionism is to blame for a lot. https://venezuelanalysis.com/analysis/10112 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) https://vimeo.com/16724719 https://vimeo.com/16724719

dingo_bat 9y ago

Venezuela failed because of the lack of a free market. Almost all economic activity was by the government, there were price controls on everything. It turns out the market is much more efficient in managing resources than any one organisation. 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.