The Agony of Venezuela–from democracy to tyranny, hunger, sickness, and ruin–and a way back from the catastrophe

 

The misery and plight of the people of Venezuela in the second decade of the 21^st century is virtually beyond belief and unimaginable for most residents of the United States. What is the cause of this misery? It is the belief of a self-selected ruler that he could improve life for most citizens by taking from the rich to give to the poor.

To accomplish this he used the institution of political democracy to obtain the sanction of the majority. Once in power he abolished political democracy and established an apparatus of coercion that is crushing the lives of most Venezuelans and bringing ruin to the entire nation.

Venezuela is a South American nation of 30 million people living in an area of 352,000 square miles, larger than France or Germany. Venezuela has the largest proven oil reserves in the world. Despite its petroleum wealth, since 2014 Venezuela’s economy has collapsed. 

Until recently Venezuela was a prosperous country by Latin America standards. It was governed by a political democracy. However, democracy was ended in Venezuela by the ruling party headed by former President Hugo Chavez and his successor Nicolas Maduro.

According to the editors of The New York Times, “The devastation [Maduro] and his leftist firebrand predecessor, the late Hugo Chávez, have visited on Venezuela is hard to fathom, especially as the country has the world’s largest oil reserves . . . The economy has shrunk by more than 30 percent since the collapse of oil prices in 2014, and the [Venezuelan] oil industry is collapsing; the inflation rate is by far the world’s highest, set to reach 13,000 percent this year, according to the International Monetary Fund.

“More than a million people have fled the country since 2015; the health care system is in such dire straits that malaria, once almost wiped out, is soaring; about three quarters of the population has involuntarily lost nearly 20 pounds of weight and people scrounging for food in garbage has become, according to the Brookings Institution, the new normal.” ¹

Hunger has gripped the nation for years. Only 10% of the people have adequate food. The poor are suffering the most. Infants are dying of starvation in unprecedented numbers. ² 

As conditions worsened in Venezuela, people began fleeing the country in record numbers to escape hardship and the hopelessness of political change as a means of ridding the nation of the ruling regime. Around one million Venezuelans have emigrated in recent years, with 5,000 per day leaving in the first part of 2018. ³

Inflation, always high in Venezuela, has accelerated into hyperinflation that the International Monetary Fund estimated will be 13,000 percent in 2018.

Venezuela’s government is bankrupt; it is unable to service its debt obligations to foreign creditors, and the debt problem is getting worse.

The cause of this misery is the policies of Venezuela’s ruling political party, the United Socialist Party of Venezuela. The regime’s policies were once popular with many voters, but corruption and irresponsible spending to implement those policies led the nation into bankruptcy. Furthermore, the regime wasted national resources by providing oil without charge to Cuba, Nicaragua, and other countries headed by dictators sympathetic to Venezuela’s regime.

All attempts of the people to make political changes by peaceful and democratic means have been frustrated by political repression.

Frustration with inability to bring about a peaceful political change in government led to massive public protests in 2017. The protests were put down by police and armed gangs supporting the state, resulting in the deaths of more than 100 protestors. ⁴

Update: According to a report published The Economist on September 7, 2019, “Venezuelans . . . have many compelling reasons to leave Venezuela. Its government admits that it killed 5,287 people last year for ‘resistance to authority’, inflation has reached as high as 2,700,000% and by early 2018 the average person had lost 11kg (24lb) from hunger. Perhaps 13% of the population has fled—over 4 million people.” [Emphasis added]

According to reports of May 2 and May 17, 2019 in the New York Times, in Venezuela, “Shortages have sunk much of the population in a deepening humanitarian crisis, though a core group of military top brass and high-level officials who remain loyal to Mr. Maduro are able to tap into the remaining resources to survive — or even enrich themselves through illicit means.”

CHAVISMO and the BOLIVARIAN REVOLUTION

The end of democracy in Venezuela started with the political ascendancy of Hugo Chavez (1954-2013). Chavez was an army officer who participated in a failed coup d’état in 1992, for which he was imprisoned for two years and was forbidden to rejoin the military. Upon release he sought power by political activity, espousing a program of using the state to help the lower economic classes.

In 1998 Chavez was elected President of Venezuela. His fifteen years as President ended only with his death in 2013. Shortly before his death Chávez named Nicolas Maduro (born 1962) as his successor.

Chavez called his political ideology the Bolivarian Revolution and Socialism for the 21^st Century which became known also as “Chavismo.” The policies of Chavismo consisted in large part in spreading money around low-income neighborhoods as well as among business elites and top army officers.

The state acted to stifle criticism of itself by imposing heavy fines on television and print media, and forcing them to publish propaganda supporting the state. The judicial system is highly politicized at all levels so that journalists and private media outlets cannot rely on impartial adjudication of cases affecting press freedom. ⁵

Chavez used the military and the police to buttress his political power. He purged the armed forces leadership in 2002 and replaced fired officers with those loyal to his regime. To gain the loyalty of the top military officers Chavez saw to it that they were well paid.

He took over the police force in the capital, Caracas, and elsewhere. He imported Cuban intelligence agents to create a system of domestic spying. People were recruited and paid to spy on their neighbors and report those who spoke out in protest of the state’s actions.

The regime paid armed gangs known as Colectivos to intimidate and assault citizens who spoke out against the regime.

Acting in the name of the Venezuelan state, Chavez seized scores of energy, banking and telecommunications companies in addition to more than one million acres of farmland, calling these seizures “nationalization.”

In an election in 2015, opponents of the regime won a majority in the National Assembly, Venezuela’s legislature. President Maduro made the National Assembly powerless by establishing a new lawmaking body, known as the Constituent Assembly, composed entirely of supporters of the regime. The Constituent Assembly granted itself wide-ranging powers to enact legislation. ⁶

According to the editors of the New York Times, “Mr. Maduro has packed crucial state institutions, including the Supreme Court, with loyalists and has stymied the opposition-run Parliament at every turn. His government has kept political opponents arbitrarily jailed for years.” ⁷

The state recognized no limit on its spending, but there was a limit on its tax revenues which were inadequate to pay for the state’s spending. Therefore, the state resorted to monetary inflation to create funds to pay for its spending.

Inflation devalued the money, leading to price increases. Farmers and merchants who produced or acquired food or other products for sale, would lose money and be forced out of business by accepting payment in bolivars, the national currency, at the state-mandated exchange rate. Therefore producers and merchants raised prices in amounts they deemed necessary to protect themselves from losses on sale.

When public outcry arose against rapidly rising prices, the regime instituted price controls. The combination of high inflation plus price controls stifled productivity and production in Venezuela. By continuing production under the circumstances of high inflation plus price controls farmers and manufacturers would suffer ruinous losses. Consequently, producers stopped producing and merchants went out of business.

The regime’s hostility to business devastated the nation’s economy. The state nationalized hundreds of companies and trumped up charges against their owners, causing much of Venezuela’s private sector to shut up shop and flee. As a result, the country has seen vast capital flight, and must import many goods that it used to produce. Non-oil exports have ground to a virtual halt.

Price control plus inflation and the effect of the state’s taking over hundreds of companies, farms, and ranches, made Venezuela’s economy among the least productive in the world. The decline in production and productivity made the nation more and more dependent on oil sales at a time when oil production was collapsing.

HEALTH CARE: THE PROMISE AND THE REALITY

A new Constitution for Venezuela adopted in 1999 provided that free comprehensive health care would be made available to all Venezuelans. ⁸ However, since 1999 health care has virtually disappeared in Venezuela due to the economic collapse which has caused shortages of doctors, medical supplies and medicines, food, water, and electricity.

Doctors at leading hospitals are no longer able to perform surgeries because of lack of medicines and medical supplies. Patients are dying avoidable deaths from easily treatable illnesses that go untreated. The incidence of malaria and other diseases is rising to high levels. Thousands of doctors have left the public health system because of shortages of drugs and equipment and poor pay. Maternal and infant mortality have risen to unprecedented levels. One third of Venezuela’s physicians have left the country due to the difficulties of medical practice and physical danger to physicians from violence. ⁹

WRECKING THE NATIONALIZED PETROLEUM INDUSTRY

Venezuela’s difficulties have been aggravated by the pillaging of the national oil company, Petróleos de Venezuela S.A. (PDVSA), as a source of money to fund the regime’s spending. The regime packed PDVSA with political supporters, starved it of investment capital, failed to maintain petroleum refineries, mismanaged the company and suffered a consequent drastic reduction in output. ¹⁰

PDVSA is burdened by immense debt. It has been effectively in default on its $26.5 billion in unsecured bonds since November 2017. It owes roughly $60 billion more to service companies that drill and maintain its fields.

At the Paraguaná Refining Center, one of the largest refinery complexes in the world, the refineries, like most of the company’s facilities around the country, have fallen into grave disrepair. This has forced severe cutbacks in operations, leading to layoffs and an increase in accidents and injuries. A lack of investment compounded by cash flow problems and chronic shortages of spare parts have crippled operations, The refineries do  not have the computer software to diagnose its production problems, nor the money to fix them if they did.

Production in recent years has fallen so far that PDVSA is no longer able to meet domestic demand for diesel and gasoline, forcing the country to import increasing amounts of both.

China has lent the Venezuelan state billions of dollars that are being repaid in oil shipments, cutting PDVSA’s annual revenues.

In 2002 PDVSA workers staged a protest against Chavez. In response, he fired 18,000 PDVSA employees, including senior managers. He had the company hire tens of thousands of people loyal to his regime. A general with no energy experience was installed as the head of PDVSA. Arrests, firings, and emigration have gutted top talent. Oil facilities are crumbling, while production is plummeting.

Wage increases have lagged far behind soaring inflation and workers have seen the purchasing power of their wages drop markedly and benefits reduced sharply. At the nearby town where workers live, roads are plunged into darkness at night because thieves have made off with the wires that carry power to the street lamps. Shops in the city’s downtown, once abuzz with commerce, are now shuttered. Residents have migrated abroad in search of work and better lives. ¹¹

WATER AND ELECTRICITY SERVICE UNRELIABLE

Incompetence of the ruling regime has caused interruptions in the supply of water and electricity. In May of 2018 the five million people in the capital city, Caracas, were without regular water even though water reservoirs had been filled by ample rains. According to The Economist magazine, Soledad Rodriguez, a graphic designer living in Caracas said, “I’ve forgotten what it is like to bathe in running water. . .

“‘The city is getting less water than it did in 1999,’ says José de Viana, who in pre-Chávez days was president of Hidrocapital, a state-owned water utility. The main job requirement for workers is loyalty to the leftist regime. This has led to its ‘de-professionalization,’ says Mr. de Viana . . .

“The company cannot afford spare parts for vehicles. The minimum salary at Hidrocapital is worth less than three dollars a month at the market exchange rate. For that pay, many employees do not even pretend to work. Just 20 of Hidrocapital’s 400 maintenance teams are functioning. Two aqueducts are supplying Caracas with less than half the normal amount of water because the firm has not maintained pumping stations. . .

“Drier parts of Venezuela have both water shortages and power cuts. Domenico Clara, who runs a bakery in Maracaibo, capital of the oil industry, says power is cut off five to seven times a day. Without refrigeration ingredients spoil; electronic payment systems don’t work so customers can’t pay (there is a shortage of cash, too).” ¹²

INFLATION AND REGRESSION TO A BARTER ECONOMY

Oil revenues together with taxes were not enough to pay for all the expenditures made to buy political favor among the voters so the regime resorted to inflating the money supply to pay its expenses.

Money is one of humanity’s most important inventions. The Chavez-Maduro regime made money worthless in Venezuela.

Before the development of money, people had to make a direct exchange of goods or services, for example food could be exchanged for a tool. This is known as barter. Money allows people to make indirect exchanges of goods and services by sale for money that would be acceptable as payment for any available goods or services.

With the advent of money and rapid transportation of goods, people were enabled to make indirect exchanges for anything produced anywhere in the world. Absent money and effective transportation of goods, one could purchase only products made locally.

Money and the division of labor facilitate ever increasing specialization in work and consequent ever increasing productivity. Increasing productivity causes an increase in the standard of living because the more that is produced the more there is available for consumption.

Hyperinflation in Venezuela has destroyed the value of the national currency, relegating people to barter to make exchanges. ¹³ A nation that can only barter has been pushed back in time thousands of years, to the time when people could acquire very little by exchanges with others.

In the time since Hugo Chavez took office in 1998 through 2014, inflation averaged 25.5% per annum. Consequently Venezuela’s currency, the Bolivar, lost 95% of its purchasing power from 1998 to 2014.

Since 2015 Venezuela’s Bolivar has been in a hyperinflation that has reduced the purchasing power of its currency by over 99%. ¹⁴

This inflation affects everybody who depends on money and money income to pay for the necessities of life. One air force lieutenant said that the collapse of the currency had reduced the purchasing power of his monthly paycheck to the equivalent of $10. Unable to afford a car or an apartment, he rode a bicycle to the base and moved in with his wife’s parents. ¹⁵  

A law professor in Maracaibo found his teaching career unsustainable, in part because his monthly salary was worth $5 by the time he left the country. ¹⁶ People with limited incomes find that the money they can get their hands on will buy very little in the way of food or other necessities, so that a typical week’s salary might buy only a couple of eggs and a bit of corn meal.

The worthlessness of a nation’s money causes a breakdown in all economic activity. Production virtually ceases. It becomes impossible to save and invest in the absence of reliable money. Economic exchanges are limited to bartering.

THE CAUSE OF FOOD SHORTAGES IN VENEZUELA

The hunger in Venezuela is incredible to those living in the United States where stores with food and restaurants serving food are found in adequate supply even in the remotest and most sparsely populated regions of the country.

Food is readily available everywhere in the world except for the poorest districts of the poorest countries in Asia and Africa, and except for Venezuela and Cuba. ¹⁷ Food is available worldwide because food producers and owners of stores and restaurants seek to sell their food to earn money to buy other things. Food is not readily available in Venezuela because of the combination of inflation, price controls, and the state’s extreme hostility to business.

Venezuela is not suffering a famine caused by war or any natural cause. It is suffering a man-made shortage of food caused by political action.

Large farms that were nationalized and taken over by the state have become unproductive. Due to inflation and price controls individual Venezuelan farm families are out of the business of producing food for anything but their own subsistence needs.

Grocery stores in Venezuela have virtually no food to sell. When stores still had food they were ransacked and looted by hungry people. According to a report in The New York Times “With delivery trucks under constant attack, the nation’s food is now transported under armed guard. Soldiers stand watch over bakeries. The police fired rubber bullets at desperate mobs storming grocery stores, pharmacies and butcher shops.” ¹⁸ Privately owned stores cannot continue acquiring food to sell if they are unable to sell it because it is stolen by hungry people. Under such conditions, suspending business or going completely out of business are the only possibilities.

According to a report in the Miami Herald, children in significant numbers are to be found on the streets of Venezuela, working, sleeping, and begging for food or money. It is not uncommon for some of these children to be the sole source of food for their families. The children carry home anything marginally edible, such as rancid fish, meat and cheese. ¹⁹

Due to its virtual bankruptcy the state cannot afford to import enough food to feed all of the people at even a subsistence level.

BRIBING THE HUNGRY WITH FOOD: I GIVE AND YOU GIVE

According to a report in The New York Times just before the election scheduled for May 20, 2018, “A large majority of Venezuelans are dependent on the government for subsidized groceries distributed by local councils loyal to the president. Food has even entered the election, potentially controlling the way Venezuelans will vote.

“Many people receive their subsidies using a special identity card that is playing a big role in this election. For Sunday’s vote, Venezuelans have been told to present these cards at stations run by Mr. [Nicolas] Maduro’s governing party at polling places — so that party organizers can see who has voted and who has not.

“‘Everyone who has this card must vote,’ Mr. Maduro has said at his campaign rallies, directly linking government handouts to voting. ‘I give and you give.’” [Emphasis added] ²⁰

The hardship of waiting for a handout of food from the state is illustrated by the following quotation from a New York Times article published the day before the election of May 21, 2018:

“Álvaro Castillo showed up before dawn and waited 37 hours for subsidized food in Plaza Venezuela, a crime-ridden area of Caracas. He will not vote on Sunday. ‘If we go out to vote or not, Venezuela is already destroyed [he says].’  Thousands of people were waiting in line with Mr. Castillo. Most were exhausted. Many women carried infants. The elderly struggled to stand. More than a million Venezuelans have already left the country. If Maduro wins on Sunday, Mr. Castillo’s only option will be to follow them, he says. ‘It is better to leave the country than try to change it.’” ²¹

CRIME IN THE STREETS

Street crime has become rampant in Venezuela as the predicament of the people has become more and more desperate. Holding a mobile phone in public is an invitation for a thief to take it. Children roam the streets searching for food, often digging through garbage looking for unused scraps. Fights erupt in which children are stabbed by other children fighting over a bit of food.  Trucks carrying food are hijacked, and stores are looted of any food they may have. ²²

According to an Associated Press report, doctors in public hospitals “. . . work under constant death threats from relatives or friends of patients — some of them dangerous gang members — if the patients die. ‘Most of the time that’s the doctor’s worst fear, that the patient dies and the relatives take it out on him,’ said a physician . . . ‘The threat of harm if the patient dies is always there. We don’t have any kind of protection.’” ²³

VOTING WITH ONE’S FEET

After President Hugo Chávez vowed to break the country’s economic elite and redistribute wealth to the poor, the rich and middle class fled to more welcoming countries in droves, creating what demographers describe as Venezuela’s first diaspora. Since 2013 a second diaspora is underway — much less wealthy, more numerous, and not nearly as welcome by Venezuela’s neighbors.

A growing number of Venezuelans have fled the country, many to neighboring Colombia and Brazil, and some going by small boat some 70 miles or more to the island of Curaçao. Most Venezuelan migrants go with little more than the clothes they wear. They go to escape the hunger and hopelessness they see as their fate in Venezuela. Around one million Venezuelans have emigrated in recent years, with 5,000 per day leaving in the first part of 2018. ²⁴

Soldiers have been deserting the Venezuelan army in growing numbers. According to an account in the Wall Street Journal, “impatient for change and increasingly desperate, some troops are simply going AWOL. One army veteran estimated that as many as 1,000 soldiers, including cadets and mid-ranking officers, have deserted in the past year and said that many more have requested formal discharges. The government has begun running ads in Caracas newspapers demanding missing troops return to their posts.” ²⁵

A NOT SO OBVIOUS SOLUTION TO THE PROBLEMS OF VENEZUELA

Venezuela is a nation with every possibility for progress and advancement in the absence of political and social turmoil. In addition to its world-leading petroleum reserves, it has universities, before Chavismo a developing industrial sector of the economy and a rich cultural life. For example, in 2007 Venezuela’s Gustavo  Dudamel,then age 26, was appointed music director and conductor of the world-class Los Angeles Philharmonic Orchestra. Many Venezuelans play in Major League baseball in the United States, including José Altuve, the Most Valuable Player in the American League in 2017.

Venezuela, as almost everywhere in the world, has ambitious people eager to make the most of their talents by providing service to others through entrepreneurial activity and otherwise.

What Venezuela needs most after Chavismo is relief from Chavismo. There is a possible peaceful solution to Venezuela’s current problems. Only the regime in power could choose the peaceful solution.

What is the solution? It would be to repeal every law and policy enacted, adopted, and enforced by the state since the accession to power of Hugo Chavez.

A costless first step would be to rescind the previous rejection of humanitarian aid from outside Venezuela. The aid would be forthcoming and prompt from private sector organizations in the United States and elsewhere, as it always has to alleviate suffering from natural disasters. Humanitarian aid would help feed the hungry and care for the sick while Venezuela’s producers and medical professionals began the task of restoring the supply of food and health care.

Abolishing Chavismo would require the state to end hyperinflation, eliminate price controls, return expropriated property to the former owners, remove political appointees and army generals from control of the national oil company, and re-install the professional managers that operated the company effectively before Chavez.

Because the national oil company has been wrecked, it would also be appropriate for the state to invite foreign oil companies and their experts in to resuscitate and rebuild the oil company. That would require credible guarantees that the state would honor all its promises and obligations to those who would repair the oil company.

There are real world models for such a solution. It is in effect what West Germany did beginning in 1948 under the leadership of Ludwig Erhard. Germany’s economy and population had been devastated by twelve years of Nazi rule and enormous war losses (1933-1945). Liberalizing the West German economy by freeing it from excessive state control starting in 1948 led to what has been called the Economic Miracle of post-war Germany.

A liberalized economy is the explanation for the difference not only between East and West Germany, but between North and South Korea, and between Hong Kong, Taiwan and mainland China before the death of Mao Zedong.

Abolition of Chavismo would draw back into the country many of those who fled the ruin and despair of Chavismo.

Best of all would be to abolish or at least curtail the laws of Venezuela that existed before Chavez that restricted economic activity. According to a long-time observer of Latin America, May Anastasia O’Grady, “By the time [Hugo] Chávez was elected [in 1998], Venezuela already had 40 years of socialism under its belt and precious little, if any, experience with free markets. ²⁶

There is a South American model for liberalizing a formerly restricted and stagnant economy. It is the path taken by Chile since the 1970s that has given Chile the fastest-growing economy in the region. In Chile poverty has fallen significantly and living standards have soared. What was good for Chile would be equally good for Venezuela.