How Prosperity Became Poverty: The Story of Venezuela

 /  Nov. 1, 2017, 12:10 a.m.

Protests in Caracas

How did Venezuela, once heralded as the success story of South American socialism, fall into such disarray? It is a nation whose inflation rate is predicted to soon surpass 1600 percent, a nation where three-fourths of the population has lost an average 8.7 kilograms of weight over the past year. It is a country where school children faint in class from malnourishment and hospital workers do not have access to gloves or soap, never mind antibiotics. Venezuela has larger oil reserves than Saudi Arabia yet more homicides per capita than anywhere else in the world

The source of Venezuela’s misery can be traced back to the 1990s, to the election of Hugo Chavez, the great crusader against government corruption. When Hugo Chavez was elected President of Venezuela in 1998, his first action was to consolidate power, and he redrafted the Constitution to grant him sole control over the country’s three branches of government. In contrast with this authoritarian move, Chavez also built bridges and schools, implementing social programs that improved the lives of millions of Venezuelans.

Yet Chavez’s increased authoritarianism and radical positions, such as forging ties with the Castro regime in Cuba and criticizing the U.S. invasion of Afghanistan, alienated his people, who took to the streets by the thousands. In response, Chavez shut down radio and television platforms and arrested those who dared to challenge his regime. For example, Chavez’s most formidable opponent in the early 2000s was the state oil company, Petróleos de Venezuela, S.A. (PDVSA)—which in 2003 accounted for nearly 80 percent of Venezuela’s export revenue. To mitigate the threat that the PDVSA posed, Chavez fired more than thirty-eight thousand employees who were members of the oil union and filled their positions with nonunion workers, allowing him unparalleled access to the country’s oil revenue. Thus, Chavez was able to consolidate control of the country’s economy, in addition to its government.

Joao Panicali, a University of Chicago first year who has lived in Venezuela since 2015, sheds some light on the economic causes of Venezuela’s plight. He claims that the problem lies in Chavez and Maduro’s lack of understanding of basic economics, as neither of them had any experience in running a political economy. Tulane University professor of Sociology, David Smilde, furthers this idea, stating that Maduro “inherited a set of policies from Hugo Chavez that were created during the good times.” These policies, Smilde continues, were wrongly based on the assumption that there would be a “continual growth of income from oil.” Venezuela is now suffering the consequences of this unsustainability, namely inflation. Though the official exchange rate stands at a fixed 10 bolivares per dollar, the de facto rate—which is based on the value of the bolivar within Venezuela—is much higher. As of May 2017, it cost about eight thousand bolivares to buy a bag of rice in a supermarket, far out of reach for someone making the monthly minimum wage of ninety-eight thousand bolivares (equivalent to about $12.53). In an effort to help the starving population, the government gives out monthly food rations, but Panicali says that these rations are not enough to feed a family of five for a week, let alone a month. To compound the problem, the government has capped the price of food, meaning that the producers can barely afford their own meager rations and are no longer incentivized to produce. The only reliable source of supplies is the black market, which, Panicali says, is only affordable to those with access to American dollars.

As the economy has declined, so has the government’s popularity. On March 30, when the Supreme Court announced it would take over the opposition-led Congress’ legislative powers, riots erupted in the capital (the decision was reversed a few days later in response to the protests). “The police, they don’t care about the people,” Panicali claims. Indeed, from April 1 to July 28 more than 111 people were killed, many by police forces or armed government supporters. Panicali is adamant that this number is too low, as it does not include those people killed by the government-hired militias. As for whether the opposition extends beyond protests, Panicali admits it is not terribly unified but that many of the requests made of Maduro are similar: open a line for healthcare essentials into the country, release all political prisoners, and remove the Supreme Court justices who issued the March 29 ruling. Other opposition groups are more extreme, such as those who demand that Maduro resign from the presidency.

Though many Venezuelans are hopeless about their future, Panicali is not: “Venezuela has everything it needs to be prosperous: natural resources, arable land, and tourist attractions.” But Venezuela’s political and economic problems, at least for the interim, do not appear to be headed towards resolution. In regards to next steps, Venezuela might take example from a similarly governed country—Bolivia. While Bolivia may not be the paradigm of prosperity, it has made several important advances over the decade since socialist Evo Morales came into power. Rather than overspending and racking up a large deficit like Venezuela, Bolivia has been frugal, resulting in budget surpluses every year from 2006 to 2014. Thus, the Maduro government must make a choice: it can respond to citizens’ economic concerns, like Bolivia’s government did, or it can continue to take authoritarian measures to remain in control. Given the Maduro government’s track record, it would not be surprising if it chose the latter, yet such an option is unsustainable and could ultimately result in full-fledged revolution.

Molly McCammon is a Contributing Writer for The Gate. The image featured in this article is licensed under the Creative Commons.

Molly McCammon

Molly McCammon is a first-year prospective double major in Philosophy and Political Science. On campus she is a data research assistant for the Chicago Project on Security Threats (CPOST), involved in EUChicago, and volunteers with non-profit Sirat, helping conduct ESL lessons for Syrian refugees living in Hyde Park. In her free time she enjoys running, reading, and finding Chicago’s best baklava.


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