Pointing The Finger: Should Hugo Chavez's Left-Wing Economic Policies Bear The Brunt Of The Blame For Venezuela's Economic Collapse?
Pointing the finger: Should Hugo Chavez's left-wing economic policies bear the brunt of the blame for Venezuela's economic collapse?
The socioeconomic crisis Venezuela has endured since the turn of the century has come about as a result of a masterclass in poor economic policy. The Chavez administration became a beacon for criticism due to its focus on unsustainable social welfare programs, known as the ‘Bolivarian Missions’ over-reliance on oil export revenue as well as other economic gaffes that were allowed to worsen during Chavez’s years in power. Fast-forward to 2016, and the Venezuelan economy has contracted by 18.6% over the previous year whilst monthly inflation rates have smashed through the 50% hyperinflation threshold in November before skyrocketing to 800% by the end of December (Krieger, 2017)  The Venezuelan Chamber of Commerce has declared that 80% of Venezuelans now live in relative poverty and new president Nicolas Maduro has taken no discernable steps to get the country back on track. With inflation projected to exceed 1600% by the end of 2017 (Gillespie, 2016) , the extent to which Chavez’s socialist policies are culpable are clear.
Hugo Chavez served as President of Venezuela from 1999 to 2013, with his reign marking the transformation of the Venezuelan political system. Chavez renamed the country to the ‘Bolivarian Republic of Venezuela’, in honor of social revolutionary Simon Bolivar. After the drafting of a new constitution in 1999, Chavez moved to achieve a ‘Bolivarian Revolution’: the implementation of left-wing reforms to move towards a society built upon social equality, justice and welfare. These policies were collectively named the ‘Bolivarian Missions’.
As benevolent as these ‘missions’ seem, the socialist economic policies that were employed in attempting to realize them were destructive. These policies were consistently chosen based on how politically competitive they would make the Chavez administration rather than on actual economic viability, a key example of the economic policy of government failure. This system led to unmitigated spending on various forms of equality-driven fiscal stimuli so as to create a consumption boom from direct cash transfers to low-income individuals and subsidized food to multi-million dollar contracts for local firms (Corrales, 2015) . Despite the hazardous nature of long term implementation of these policies they were still in progress post-2009, at a time when high oil prices meant that Venezuela’s fiscal deficit had steadily increased to 15% of GDP (Corrales, 2015) . Additionally, the country became woefully dependent on oil exports during Chavez’s presidency and suffered from a severe case of Dutch disease, with oil revenues making up 95% of export value (BBC, 2017)  and the proportion of GDP represented by the manufacturing industry dropping from 17.4% to 14.2% (El Universal, 2012) . When this is combined with the aforementioned fiscal deficit, it becomes clear to see why the Venezuelan economy was so vulnerable in the event of any significant drop in oil prices. Socialist policies have also had a detrimental effect on the oil industry the country is so dependent on - PDVSA, the state-owned oil company that dominates the industry in Venezuela, has been deprived of much-needed capital and its revenues have been spent on achieving the Missions rather than actually improving PDVSA’s productivity (Corrales, 2015) .
In order to maintain this spending on public welfare, the Venezuelan government issued an excessive amount of bonds and drove up international borrowing, culminating in public debt reaching 55% of total GDP in 2003 (IndexMundi) . The monetization of this debt opened the floodgates to inflation, which duly rocketed from 12.3% in 2001 to 31.2% in 2002 (IndexMundi) . The Chavez administration recognized that such inflation would increase poverty, undermining Chavez’s entire electoral basis of ensuring the welfare of the poorest members of society. However, being a populist government, fiscal adjustment was not the chosen course of action to fix the inflation problem (Corrales, 2015) . Instead, strict price controls on commodities, labour markets and foreign exchange markets were put into place in order to put an end to ‘unfair prices’, starting in 2002 (Nino, 2016) . As expected with such policies, the setting of prices far below actual market price caused extreme scarcity of basic goods (Pearson, 2007) . Hunger became more prevalent, and empty supermarket aisles became commonplace.
To stick to the equality-driven promises that aided his election, Chavez needed to respond to the poverty increase brought about by both the 2002 inflation hike and the goods scarcity brought about by price controls. To do this, he undertook a policy of steadily increasing the minimum wage, with the most recent increase being a 25% boost introduced in 2011 (Reuters, 2011) . When we consider the decline of most industries due to the Dutch disease the Venezuelan export market was suffering from, it becomes easy to see why this brought about rampant unemployment, with figures reaching an all-time high of 20.7% in February 2003 (Trading Economics) . A more market-based approach would have avoided increasing the minimum wage, which would have kept far more people in their jobs and would have reduced stagnancy in the economy whilst decreasing the number of people the state had to directly provide for.
Many economic problems have been brought about by Chavez’s attempts to achieve social equality and it is arguable that these problems have been more as a result of his regime’s insistence on pursuing populist policies that would help Chavez win future elections rather than the regime spending on social welfare. Going back to the PDVSA, another factor that caused oil industry of Venezuela to suffer was the layoff of an immense number of workers in 2003 as a result of PDVSA’s participation in the strikes against Chavez’s government, with the total employed labour force reducing by 11,000 over the course of the year (Mares and Altamirano, 2007) . This also contained a disproportionate amount of technical and management staff which undoubtedly had a detrimental effect on the company’s productivity. The political motivation does demonstrate that collapses in Venezuela’s all-important oil industry were not always caused by Chavez’s left-wing policies, and that his regime’s desire to stay in power at any cost should shoulder some of the blame for the country’s economic collapse. Other political avenues Chavez used included his use of his access to PDVSA’s revenues to fund large propaganda campaigns during electoral seasons and for large cash payouts to encourage Venezuelan communities that historically abstain from voting to vote for him (WikiLeaks, 2004)  - wastes of state revenue that cannot be blamed on the left-wing nature of the regime.
However, another culprit who should be blamed for Venezuela’s economic collapse is the new head of government, President Nicolas Maduro, who was elected into power in the aftermath of Chavez’s death in 2013.He promised to continue the economic policies pursued by Hugo Chavez that made his predecessor popular enough to win regular elections. However, the economic issues Venezuela’s citizens faced during Chavez’s reign pale in comparison to their country’s present economic situation - highlighted most clearly by the disparity between GDP growth in the final full year of Chavez’s reign and Maduro’s most recent full year. In 2012, Venezuela registered a respectable growth rate of 5.625%, but this figure has been in a state of freefall since, plummeting to -18.6% in 2016 (World Bank) , a rate that has earned Venezuela the title of 2016’s worst performing economy, ahead of the war-torn economies of Syria and Libya. Whilst the recent collapse in oil prices is almost entirely at fault for the Venezuelan economic contraction, Maduro’s failure to diversify the economy in any way, especially after the failures caused by overreliance on oil in the Chavez era became obvious, is a criminal mishandling of the economy. This ineptness has led to social collapse in the country – the capital city (Caracas) is considered one of the most violent cities in the world with an annual homicide rate of 120 per 100,000 residents. Assault, kidnappings and petty theft are also rampant, especially near the food lines. Worse still, the Venezuelan government has denied food and humanitarian aid from international organizations such as Amnesty International and the United Nations. (CNN, 2016).
Frustratingly, Maduro also refuses to take any responsibility for the economic crisis - he instead accuses opposition-linked businesses of artificially creating economic problems, declaring inflation to be the result of speculative price-gouging by ‘unscrupulous capitalists’. Maduro insists workers are better off as a result of minimum wage increases in 2016 that totaled 454 percent and has antagonized the United States through various conspiracy theories. (Reuters, 2016). This refusal to acknowledge economic failures is a prime indicator to the Venezuelan people that there is no sign of their country’s economic collapse ending any time soon. Instead, the harsh reality is that their president seems to be gaining a greater stronghold on power the more the economy descends into chaos. Maduro has blocked referendums to recall him (Guardian, 2016) , quelled large-scale protests with military force (which has led to an estimated 100 deaths thus far - USAToday, 2017), and even directly seized power from the now opposition-led National Assembly via his supporters in the Supreme Court (NY Times, 2017) .
Overall it is quite clear that Chavez’s left-wing economic policies paved the way for the escalation of Venezuela's main macroeconomic issues, with severely unsustainable social welfare spending causing national debt to balloon and the decision to monetize debt causing inflation rates to rapidly pick up. Attempts to curb this were spearheaded by numerous minimum wage increases in order to preserve the socialist society, yet all this caused was mass unemployment. This was not helped by the nationalization of private firms deemed to be ‘not acting in the best interests of the people’, which made these businesses far less efficient. However, it would be unfair to blame the inherent socialistic nature of the policies for Venezuela’s recent economic collapse, which was primarily caused by severe overreliance on oil exports for state revenue and the subsequent collapse in oil prices. Although it is arguable that this would have had a much lesser impact had the state not been in such large debt after attempts to maintain a socialist society, reverting to socialist policies at times when the economy was strong enough to support them would have both fixed this and helped to solve the inequality Venezuela faced before their implementation. As such, though Chavez’s left-wing economic policies should be blamed for increases in unemployment, debt and inflation pre-2013, Venezuela’s economic collapse in recent years is more due to the combination of the oil crisis and Nicolas Maduro’s complete mishandling of the economy by favoring populist policies and refusal to acknowledge responsibility for the issues. Maduro seems to be taking no discernible steps towards pulling his country out of economic ruin, and the hardships endured by the Venezuelan people unfortunately seem to be worsening with each passing day.
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