For those who haven’t been following the dire situation in Venezuela, it serves as a timely reminder of what happens when extreme socialism takes over. This is the sad story of how Venezuela came to be and why it matters for Australia and every other developed nation in the world.

General background

Venezuela has had an up and down economic history to say the least – with its fortunes largely hinging on the price of oil to the tune of about 50% of its GDP:

To help fill in some more data, here’s a chart showing Venezuela’s inflation rate going back to the 1960s:

(NB: Venezuela’s inflation rate is currently around 773%).

Unsurprisingly, Venezuela’s GDP per capita (adjusted for inflation) has been similarly erratic over the years:

There are some interesting things to note from the above graphs:

• Venezuela’s GDP per capita suddenly tanked between 2000 and 2003. What happened?

• During the 2005-2014 oil boom, Venezuela’s inflation rate was significantly higher than during the previous boom of the 1970s.

• During the tail end of the latest oil boom (2013 and 2014), Venezuela’s inflation rate soared over 50% and approached 75%. How could inflation be so ridiculously high during the good times? And what would it be when the next trough came along? (NB: at present, the best guess is about 1,600%).

• From 2000-2014, Venezuela’s GDP per capita never reflected the unprecedented amount of oil money that was flowing into its economy. In fact, GDP per capita was only occasionally at the levels Venezuela experienced shortly before the 1973 oil boom (induced by the Arab oil embargo) – and considerably worse for large periods of time during the early 2000s. Where did all the money go?

• During the last global oil correction/crash, Venezuela’s inflation rate hit a peak of around 100%. During the current downturn, the rate has so far reached 773% (with plenty more to come) – to the point where Venezuela is fighting South Sudan for the title of worst inflation rate in the world… and winning.

In other words, there was clearly something making (what appeared to be) a great situation an ordinary one between 2000 and 2013 – and a difficult situation a complete catastrophe from 2013/14 on.

Send in the clowns

In 1998, world oil prices had been depressed for some time (relative to the artificially created highs experienced during the 1970s and early 1980s) and were sitting at a 25 year low: 

Venezuelans had been living within their means for the better part of the last 15 or so years, which was something fewer and fewer were willing to do. This was despite the fact that 50% of the country’s GDP came from oil and that global oil prices were low. Hugo Chavez fed on this sentiment and persuaded enough people that his brand of socialism would solve their problems. He was subsequently elected to power in December 1998.

Among countless other insane policies, Chavez’s methods included putting workers in charge of their own ‘co-operatives’ and having citizens’ assemblies dictating how local governments spent government funds:

Since Chávez was elected in 1998, over 100,000 worker-owned cooperatives—representing approximately 1.5 million people—were formed with the assistance of government start-up credit, technical training, and by giving preferential treatment to cooperatives in state purchases of goods and equipment… As of 2005, approximately 16% of Venezuela’s formally employed citizens were employed in a cooperative. However, a 2006 census showed that as many as 50% of the cooperatives were either functioning improperly, or were fraudulently created to gain access to public funds.

Additionally, several thousand “Communal Councils” (Consejos Communales) were created. In these Communal councils, citizens form assemblies to determine what will be done with government funds in their local area. Groups are made up of 150-200 or more families in urban areas, and starting at around 15-20 families in rural areas, and their decisions are binding to local government officials. 21,000 of these groups were created in 2007, and 30,179 by 2009. As of 2007, about 30% of state funds were directly controlled by communal councils, with a goal of eventually having them control 50%.

The lunatics were now officially in charge of the asylum.

Chavez also thought it would be great to take properties away from companies ‘Zimbabwe style’:

The housing market in Venezuela shrunk significantly with developers avoiding Venezuela due to the massive number of companies who have had their property expropriated by the government.

He also foolishly tried to ‘beat the market’ and play voodoo with the world oil price – despite what happened to Venezuela’s economy after the last time this was done in 1973:

Chavez also played a leading role within OPEC to reinvigorate that organisation and obtain members’ adherence to lower production quotas designed to drive up the oil price. Venezuelan oil minister Alí Rodríguez Araque‘s announcement in 1999 that his country would respect OPEC production quotas marked “a historic turnaround from the nation’s traditional pro-US oil policy.”

As the world oil price launched into the exosphere and Venezuela’s oil revenue went with it, extreme leftists around the world were hailing Chavez as a genius.

Send in some more clowns!

By 2008, members of Australia’s very own left intelligentsia were falling over themselves to declare Chavez and Venezuela as the new black:

“Dear President Chavez, “We, the undersigned citizens of Australia, would like to extend a warm invitation for you to visit our country. We have watched developments in Venezuela with great interest. We have been impressed by the effort your government has taken to improve the living standards of the majority of Venezuelans. [TMR: In 2008, Venezuela’s GDP per capita was at the same level as it was in 1970 and significantly less than it was in the late 1970s – think about that] “We have also noted the moves that your government has begun to make to create a society based on popular participation in all spheres of society — from the workplace up to the national government.”

The letter was signed by various leftist academics, union leaders, Greens and activists, including Phillip Adams, former CFMEU boss Andrew Ferguson, Lee Rhiannon and John Pilger. Thank God nobody sensible ever listens to them. In any case, rather than take up their invitation, Chavez preferred to die. But his economic policies live on under the spud-featured socialist’s successor Nicolas Maduro, who recently announced that electricity would be cut by four hours per day across much of his blighted nation.

There was also this:

In 2008 a collective of our snowfield socialists – including the ABC’s Phillip Adams, propagandist John Pilger, the Greens’ Kerry Nettle and Kevin Rudd’s nephew Van Thanh Rudd – begged Venezuelan strongman Hugo Chavez to come teach Australians a lesson:

“Every country has its own traditions and culture and has to find its own solutions, but what Venezuela has been able to achieve in so little time will be a source of inspiration and ideas for many in Australia”.

Those not suffering from chronic idiocy simply shook their heads.

It is not possible to manipulate and beat a global market and what goes up, must come down. More to the point, economically speaking: what goes up artificially often comes down much harder than it otherwise would have if there wasn’t any funny stuff to begin with.

It was only a matter of time before history repeated itself for Venezuela. Only this time, the outcome would be amplified as Venezuela had Chavez’s socialism on its side.

End game

By the time of Chavez’s death in 2013, the chickens (not real ones that Venezuelans could eat) were well and truly coming home:

In 2013, according to the Global Misery Index Venezuela ranked as the top spot globally with the highest misery index score. The International Finance Corporation ranked Venezuela one of the lowest countries for doing business ranking it 180 of 185 countries for its Doing Business 2013 report with protecting investors and taxes being its worst rankings. In early 2013, the bolívar fuerte was devalued due to growing shortages in Venezuela. The shortages included necessities such as toilet paper, milk, and flour.

It is interesting to note how this level of misery was achieved in 2013 – while Venezuela’s oil revenue was still at unprecedented levels.

Now, in September 2016, the end game is well and truly taking shape:

A new study finds Venezuela on the brink of famine, with an alarming fifteen percent of citizens saying they can only feed themselves with “food waste discarded by commercial establishments,” while nearly half say they have had to take time off work to search for food.

The More Consulting study found that three out of every four Venezuelans (72 percent) was unable to feed themselves an optimal diet of breakfast, lunch, and dinner. 24.2 percent say they rarely eat protein, living off of local tubers like yuca and malanga and some fruit. More than half of Venezuelans (52.3 percent) buy their foods through the black market, from private individuals who have stocked a surplus of an item they need.

53.9 percent of Venezuelan respondents said they had gone to bed hungry, 48 percent say they have been forced to take time off work to scrounge for food.

Sounds highly productive doesn’t it? As for President Maduro’s response:

Inflation has reached 700% as the country continues its recession, and basic food and medicine are in severely short supply. Many Venezuelans spend their days queueing for hours at supermarkets, but often go home empty-handed.

The crippling economic situation handed MUD an overwhelming victory in December’s [2015] parliamentary elections, giving many Venezuelans hope for change. But Maduro’s ruling socialist government has blocked any attempt by the opposition to legislate effectively, leaning on the supreme court to veto every major measure passed in the assembly.

And then there’s this:

During a broadcast this weekend promoting new socialist food distribution policies, Venezuelan president Nicolás Maduro jokingly referenced a popular nickname for the nation’s dire food shortages, telling a crowd, “Maduro’s diet gets you hard – no need for Viagra!”

Venezuelans have increasingly referred to the nation’s nutritional emergency, in which nearly 90 percent of residents do not have access to three meals a day, as “Maduro’s diet.”

Sadly, escalating violence and entrenched poverty are all that is left for Venezuela until it completely reforms its political and economic system:

Venezuela is the socialist nightmare of our time. It is kept out of the media in the same way that the famines in the Ukraine were kept out of The New York Times in the 1930s. The socialists who mis-report the news do not wish to see their dreams exposed no more than they would like to live in the countries they hide the details about.

Here’s the latest episode: SCENES FROM THE VENEZUELA APOCALYPSE: “COUNTLESS WOUNDED” AFTER 5,000 LOOT SUPERMARKET LOOKING FOR FOOD.

Capitalism works. Nothing else does. This is the lesson from Venezuela that none of the fools who follow Bernie Sanders or the Greens ever seem to understand.

The only question left is how many lives will be needlessly impoverished and lost in the process?

Venezuela has shown yet again what happens when you take too much money out of the hands of those who earn and give it to those who could and should contribute, but do not. With around half of Australians currently paying no net tax, Venezuela’s story is something we cannot afford to arrogantly dismiss.

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Footnote

Getting recent and reliable data on Venezuela’s economy is a treacherous task. For example, it would have been interesting to analyse Venezuela’s current and historical debt levels, rather than simply saying that debt to GDP was somewhere around 50% in 2014.

But… you know…

Venezuela’s economic distress is so acute that the central bank stopped releasing regular statistics for the first time ever, threatening to increase borrowing costs further as the nation faces $10 billion of financing needs.

The central bank’s decision to hold back a preliminary report on economic growth, public spending and foreign-currency distribution scheduled for Dec. 31 [2013] was the first of its kind since it began publishing the data in the 1990s. The bank, which also stopped reporting annual inflation in November, issued a report on monthly price changes that blamed an “economic war” for rising costs as a shortage of dollars leads to empty shelves in supermarkets across the country.