5 Crucial Lessons from the Venezuelan Crisis

Written by: Michael Gyekye Venezuela has come under the international news spotlight in recent months and weeks thanks to a dramatic implosion that is roiling the country. The oil-rich Latin American state is presently the scene of numbing economic deterioration, social decay and human suffering. As...

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Written by: Michael Gyekye

Venezuela has come under the international news spotlight in recent months and weeks thanks to a dramatic implosion that is roiling the country. The oil-rich Latin American state is presently the scene of numbing economic deterioration, social decay and human suffering. As reports in recent weeks particularly indicate (see this one), the crisis afflicting Venezuela at the moment is fast degenerating into an appalling humanitarian nightmare. For the culprits, toxic socialist policies and concomitant social pathologies unleashed on the Venezuelan state for decades are identified. As the country battles for survival through this tragic yet dramatic instance of the unraveling of a socialist state in the 21st century, alarmed international spectators may find the following important lessons taught or reinforced by the horrific disaster currently unfolding in the country.

  1. Dependence on natural resources brings disappointment – Venezuela’s journey to this calamity has been spurred by the sustained drop in international crude oil prices that has cut the country’s revenue from the export of crude oil. Oil revenue accounts for around 95% of Venezuela’s foreign earnings. Anti-free market policies adopted in the country in recent decades, such as extensive nationalisation of companies or their assets, have denied the domestic economy the shock absorption capacities of a well-diversified economy. Private domestic and foreign investment in especially the non-oil sectors of the country’s economy have been effectively crowded out. Therefore, confronted with a virtual closure of the country’s petrodollar spigot, it is currently scraping for an economic lifeline while flailing before serious threats of state collapse.
  1. Price controls are harmful – Acute shortages of basic life necessities from food to medicine, diapers to deodorants, toilet paper, etc. as reported in Venezuela, shows the harm price controls by the state can inflict on an economy. As the government sought to control the prices of these items and others through price ceilings, their supply dwindled, leading daily to long queues of customers searching for these basic necessities.
  1. Corruption destroys nations – Corruption in a socialist Latin American petrostate like Venezuela must just be proverbial. The country occupies a joint bottom position with Haiti among Latin American countries ranked on a 2015 Corruption Perception Index released this January by Berlin-based international anti-corruption watch-dog, Transparency International. With a score of just 17 on a scale of 0 (very corrupt) – 100 (highly clean), measuring levels of perceptions of public sector corruption, Venezuela astonishingly trailed even states like Zimbabwe and Syria, with its 158/168th position on the global index. It must come as little surprise then that the country, with a population of 28.8 million, finds itself in its present ruins. It serves to note that corruption festers most in states with public monopolies that crowd out private businesses and prevent competitive market activities.
  1. Socialist planning is a suicide trap in the era of globalisation – The dangers of socialist planning are particularly aggravated in this era of rapid globalisation. As increasingly enhanced economic and social interactions of people in distant corners of the world continue to diminish the capability of states to immunise their domestic activities against direct or indirect external influences, societies that naively formulate national economic plans today – often with the assumption that they may facilitate effective domestic direction and control of the economy and help to successfully contain potential disruptions from external economic and social forces – only thrust their heads into nooses, consciously or otherwise. As the collective impacts of shale oil production in the United States on international crude oil prices and the repercussions of the Chinese economic slowdown on global crude oil demand cannot be overstated, especially in terms of their effects on petrodollar flows to petrostates like Venezuela, it should be clear now that heavy state planning can hardly achieve any of the objectives and other lofty goals they aspire to, especially in the modern era of globalisation.
  1. Private entrepreneurship remains the pivot of development – The Venezuelan catastrophe must ultimately remind us that sustainable development is only promised by the free and voluntary pursuit of economic activities by free individuals, guaranteed at least their fundamental individual liberties and the protection of their rights to freely possess and dispense with property. State attempts to usurp this role only guarantee tragedies like the unfolding one in Venezuela.

I hope these lessons would be learnt by all, especially other socialist states sitting (perhaps unknowingly) on similar time bombs!

Author: Michael Gyekye is an African Students For Liberty Local Coordinator in Ghana.

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  1. Malusi Ndwandwe Reply

    I can say that in general, Venezuela’s fate is no different to the fates of Nations who were obsessed with making Socialism work.

    1. Zaggeta Reply

      I ask myself what it will take for commies to realise their theory is a failure, but then I always realise that they are incapable of realisation. They are fundamentalists – driven by blind fanaticism.

  2. Harald Sitta Reply

    No, Socialist will not listen. They do not listen since end of 19th century. Ayn Rand:”You can ignore reality but you cannot escape the consequences of ignoring reality”. Where is the “Chavez amigo, el pueblo es contigo’ crowd today.? Sorry to say but we need very strong antidotes!

  3. mshelike Reply

    “Private entrepreneurship remains the pivot of development ” What a load of hogwash Private entrepreneurship remains the pivot of corruption and greed and we all know it, in spite of the continuous bombardment of claims to the contrary. Just ask yourself who of your friends is the most generous of spirit? the ones with the business or the ones without? Who is the most selfless Jesus or Donald Trump?

    1. Zaggeta Reply

      Firstly, the point wasn’t about charity, it was about development. Generosity is irrelevant if quality of life remains at the level of banging rocks together for fun. Private incentives are needed to drive people to develop their economies and societies. It doesn’t matter if they do so out of greed or pious – as long as humanity is benefiting. And if history has shown us anything, Capitalism through private entrepreneurship has granted us wonders that have helped us all.

      Secondly, Bill Gates (an actual entrepreneur, read the definition) has donated $28bn to charity alone. That excludes the taxes he pays which hold ups entire welfare schemes and keeps a large chunk of the state afloat.

      1. mshelike Reply

        You are an obvious Capitalist who never questions who is suffering to maintain the wealth of a few. Everything we make comes from our collective free natural resources and conditioned Human Slaves like yourself, who think working for a Boss is the correct way to live.. Bill Gates is a greedy grumpy selfish old alky.The world would be better off without him and the stupid self serving system that supports him.

        1. Zaggeta Reply

          Bill Gates is actually personally on your side. He wants to raise taxes on the rich so he can give more money away.

          I am a Capitalist, not because of “internalised slavery” but because I know it’s intrinsic to free human civilisation. It is the system that rose us from the Malthusian trap, the system that ended slavery, the system that won against both Communism and Fascism. It is a system that allows us to take our natural states and transfer them in a way that helps rather than impedes other people.

          I am a Capitalist simply because it is the only moral and empirically working economic system.

          1. Altus Pienaar

            Capitalism did not end slavery, it started it!
            Freedom is a figment of some philosopher’s imagination. In this world it does not exist. We are bound by to many material restrictions. One example is the urge I am developing to have to go to the pooper soon. I have the freedom to ignore the warning signs but it will simply force me to have to wash my pants later on.
            Capitalism is not a ready made ticket to freedom even though it’s PR propaganda is selling it to the mindless sheep as such.
            We can never become free from our responsibility toward society, we can choose to ignore it and allow others to perpetrate their twisted ideas and ideals onto us or we can submit to it and become proactive in developing a participatory society centered around collaboration and co-operation.

      2. Altus Pienaar Reply

        I agree with you that private incentives is the only thing that can drive people to develop their economies and societies. But where do you place corporations because they sure as hell are not private?
        Gates! what a crap example of philanthropy! he can’t even provide decent software anymore if you haven’t tried windows 10 lately, but when one look at how this capitalist have invested his so called charity it is evident that very few ever benefit. Why? because the idiot does not know what it means to be poor.
        When did it not matter when it is out of greed?!?!?! where did you received your moral foundation? When it is out of greed a portion of humanity benefits at the cost of the larger portion of humanity. So what you imply is that as long as some of us are benefiting it is okay even when it is at great cost to many others. Right now our economic activity is slowly rendering our planet lifeless and some generation in the future will have to deal with the externalization of our current ways of production. In some ways the material successes of the current generations will always have a bad impact on some existing generations and some still unborn generations. What happened in Venezuela is exactly just that, While previous generations were enjoying driving about in their cars running on cheap fuel they were inadvertently setting up a country like Venezuela to fail some time into the future. Venezuela was not the first and certainly will not be the last as we enter into the end of the carbon energy era. Those believing that fracking and renewable energy sources can power the world still have a rude awakening waiting for them in the near future.
        South Africa is on exactly the same path as Venezuela and so is all the so called developed 1st world countries including and especially the USA.
        Venezuela is a sign of the times and although some political choices were made to sink their boat sooner than necessary, the only true plan to evade such a fate would have been to turn away from central management of resources and fueling the blind notion of an ever developing economy to the establishment of strong sustainable local economies that is founded on formal co-operative communities with the ability to provide for the bulk of human needs like food, clothing and basic services.

  4. Altus Pienaar Reply

    “Private entrepreneurship remains the pivot of development” while I agree with the author on this statement I need to point out that globalization itself have fostered the climate setting up Venezuela to fail. Instead of leaving the oil in the ground and focusing their efforts on the development of resilient, sustainable communities through co-operation while building local economies centered around the rudimentary basics of life like the production of food and clothing, Venezuela chose to drink the coolaid of capitalism, a brutal and violent system that have no mercy for those that cannot keep up. I do not see the rest of the capitalist world rushing out to help Venezuela like it rushed out to buy it’s abundant oil in the past.
    Cuba went through a similar calamity at the end of the “quasi communist” era when they were suddenly left with no oil. They managed to pull together and survive and even thrived.

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