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 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.
- 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.
- 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.
- 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.
- 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.
- 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.