Venezuela’s collapse from one of Latin America’s richest countries to one of its poorest began on December 6th, 1998, with the election of Hugo Chavez as its President. Chavez had imbibed Marxist communism as a teenager, and was affected by the FALM communist insurgency in Venezuela, one supported by Cuban leader Fidel Castro. He was by no means a Marxist intellectual, enrolling in the Military Academy to receive expert baseball coaching, but lacked talent, and was remembered as a barely adequate student who graduated near the bottom of his class.
With fellow officers, he took part in a failed coup in 1992, but established a popular leftwing political party and won the presidency in 1998 with 56 percent of the vote, having persuaded the country’s outsiders and impoverished groups to unite behind his banner in opposition to the established parties.
When he started to rule increasingly by decree, taking Venezuela down the path that Cuba had followed, it provoked a general strike, at the centre of which was the state oil company that earned 80 percent of the country’s export revenue. Chavez broke the strike by firing half its workforce and replacing them with his cronies who had no expertise in the oil business.
The price of oil was rising, however, bringing in revenues that Chavez began spending on lavish social programmes. His economy became dangerously dependent on a single commodity, and had not built up any kind of reserve to cope with a fall in oil prices.
When oil prices did fall, the government printed extra money to cover the shortfall, and when inflation inevitably followed, it fixed prices by law, causing shortages of basics such as sugar, milk and beans. Prices rocketed for food, water, medical supplies and household goods. A package of constitutional changes, passed by a referendum in 2009 cleared the way for Chavez’s perpetual reelection, which he responded to by cracking down on opponents, stifling a free press, and shutting down the one independent TV channel that was in opposition.
Fake government statistics concealed a high infant mortality rate and increasing malnutrition. When Chavez died of cancer in 2013, he was succeeded by his chosen nominee, Nicolas Maduro, who continued his policies and led Venezuela down the ever-closing spiral to poverty and degradation. Inflation exceeded 80,000 percent, and the poverty rate reached 90 percent. Millions emigrated. The country relapsed into authoritarianism as its economy collapsed.
It was, alas, a familiar story, seen before in other countries that followed the same failed policies. Adam Smith observed that:
“Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice.”
Poor Venezuela had none of these, and went from comparative affluence to utter squalor and poverty. A country can do many things wrong, yet still thrive if it has fairly free markets and fairly light taxes. There are three things, however, that it cannot do if it is to prosper: genocide, civil war and socialism.