[miclo18d]

A very well written history brief of Venezuela’s decent into madness. The last paragraph is bent into a pro 2nd amendment view. https://ammo.com/articles/venezuela-...nvy-demagogues

This should be required reading to understand the glories of the “workers paradise”; it’ll never happen.

Venezuela and the Paradox of Plenty: A Cautionary Tale About Oil, Envy, and Demagogues

As Venezuela falls into the abyss of economic collapse – the economy has halved in five years, a contraction worse than the Great Depression or the Spanish Civil War – a simplistic narrative in the American press has formed, which starts with the Chavez regime seizing control of the country in 1998. *

(The charismatic populist Hugo Chavez is, after all, the leader most Americans are familiar with when talking about Venezuela, as he made worldwide headlines with his 2006 UN speech where he called U.S. President Bush "a devil" while celebrities like Sean Penn and Michael Moore cheered him on.)

In the 1950s, Venezuela enjoyed its place among the top 10 richest countries on a per-capita basis. How has it turned into a country where more than 2.3 million of its 30 million citizens have fled since 2015 due to starvation? A toxic mix of creeping interventionism, institutional decay, private property seizures, irresponsible fiat monetary policy, and wide-ranging corruption are the main culprits. But Chavez wasn’t the instigator of this mess; the story goes back much further and should serve as a cautionary tale about one country’s faithful adherence to the tenets of socialism to the bitter end.

The Early Venezuela Economy: From Backwater to Boom Country
Gaining its independence from Spain in 1811, Venezuela started out as one of Latin America’s most politically unstable countries, remaining that way until the early 20th century. During this period, Venezuela was primarily a coffee exporter, but the game changed when its first oil field was completed in 1914. From that point forward, Venezuela went from a regional backwater to Latin America’s richest country in a matter of decades.

Oil reserves weren’t the only factor behind Venezuela’s economic success. Property rights were respected, regulations were low, sound money was the norm (Venezuela did not have a central bank unitil 1939) and the country was able to attract skilled immigrants from Italy, Portugal, and Spain. These factors helped catapult Venezuela to one of the richest countries in the world by the 1950s. Some estimates had Venezuela in the top 10 richest countries on a per capita GDP basis.
Venezuela Transitions into Military Rule

Interestingly, Venezuela was governed by numerous military dictatorships during this time period. Juan Vicente Gómez, who helped consolidate the modern-day Venezuelan state, ruled from 1908 until his death in 1935. Although Gómez had a tyrannical reputation for his suppression of free speech and other basic civil liberties, he did not tamper with the Venezuelan economy. After Gómez’s death, democracy advocates struggled to reform the government for nearly 15 years. Despite the democratic activists’ efforts, Venezuela reverted back to military rule in 1948, under the tutelage of Marcos Peréz Jiminéz.

Under the regime of Peréz Jiminéz, Venezuela received international praise for its economic performance. That being said, the Peréz Jiminéz regime did experiment with certain interventionist policies such as the creation of the state-owned steel company SIDOR and the government’s encroachment into the hospitality industry. But these interventionist policies would pale in comparison to the welfare statism pursued in the following decades.

Enter Democracy and President Rómulo Betancourt

Nevertheless, trouble was brewing. Peréz *Jiminéz was no saint, and turned to repression to quell opposition to his regime. Peréz Jiminéz's heavy-handed responses to protests generated a strong opposition movement from leftist activists. It did not help that the business class in Venezuela was also growing weary of Peréz Jiminéz's spending programs. These factors turned into the perfect storm in 1958. A coup organized by high-ranking military officials and the Patriotic Junta – a political coalition made up of the Democratic Action, COPEI (Christian Democrats), and the Communist Party of Venezuela – succeeded in toppling Peréz Jiminéz.

Once Venezuela rid itself of Peréz Jiminéz, the country began its transition to democracy. One of the renowned leaders of Venezuela’s democracy movement was Rómulo Betancourt, who eventually became the country’s president in 1959. In previous decades, Betancourt made a name for himself as a left-wing student activist. His political rabble-rousing against then dictator Juan Vicente Gómez would get him exiled from the country. Betancourt was a former member of the Communist Party while exiled in Costa Rica. And although he eventually renounced his Communist approach, Betancourt still believed in a massive state role in the economy.

Betancourt’s socialist lite vision was reflected in the Venezuelan Constitution of 1961, which set the foundation for a vast series of government interventions – labor rights, land reform, and oil industry regulation. In his article, Hugo Chavez Against the Backdrop of Venezuelan History, economist Hugo Faria details the extent of Betancourt’s government interventions:

“One of Betancourt’s first decisions as president was to undertake a land reform aimed at breaking up large landholdings (latifundia). New “owners” of the redistributed land received titles of use, but not full ownership rights. Betancourt’s government established a central planning office called CORDIPLAN, adapted to a mixed economy..

...Betancourt devalued the currency, raising the bolivar price of the dollar from 3.30 to 4.50, and implemented exchange controls. He also increased overall government expenditures, especially consumption outlays. His government tripled the income tax rate, raising it from 12 percent to 36 percent, made the tax more complex, and introduced numerous graduated brackets. Years of successive fiscal deficits made their first appearance and then became a hallmark of Venezuela’s public finance.”

Although Betancourt’s government did not do much damage off the bat, it sowed the seeds for much bigger reforms. These reforms came into fruition in the 1970s, when Venezuela had its first oil bonanza.

The Rise of Petro State Social Democracy

When President Carlos Andrés Pérez came into power in 1974, he ushered in an unprecedented era of government growth. At the time, the world was going through a profound energy crisis, from which Pérez sought to profit. Like any sympathizer of big government, Pérez channeled petroleum rents to finance his extravagant spending program. The nationalization of Venezuela’s oil industry was a crucial step in consolidating Pérez’s vision.

The government did not stop there. Fashioning itself as an all-powerful steward of economic affairs, the Venezuelan government also nationalized the iron industry during the Pérez era. Additionally, the Venezuelan state played the crony capitalist game of choosing winners and losers in the market. Protectionism also became entrenched during this period, as tariffs were placed on a wide array of goods and non-tariff barriers such as import quotas were enacted.

However, no government spending binge is complete without an easy money policy. The Pérez administration made sure to politicize its Central Bank by effectively nationalizing it. From there, Venezuelan politicians had a printing press and a petroleum revenue piggy bank to finance their government largesse.

The Beginning of a Lost Decade

Once the 1980s arrived, Venezuela was drunk on debt and was forced to make several tough calls. Pérez’s successor, Luis Herrera Campins, stated that he inherited a “mortgaged” country.

And in 1983, the first major domino fell. Venezuela was forced to devalue its currency during Black Friday. Once Latin America’s strongest currency, the Bolívar’s 1983 devaluation opened the floodgates for subsequent monetary malfeasances.

Institutional inertia remained strong in Venezuela as the Herrera administration responded with exchange controls to curtail capital flight. Venezuela’s system of multi-tiered exchange rates would fall under the purview of the “Differential Exchange Rate Regime” (RECADI) agency. Following the Herrera administration, Jaime Lusinchi’s presidency was riddled with scandals. Members of the political class profited off of Venezuela’s exchange rate boondoggle through sweetheart deals and favorable exchange rates that would otherwise not exist in a functioning market economy.

Public outrage and political pressure forced the Venezuelan government to abolish the RECADI exchange control system. However, RECADI’s legacy would be etched in the Venezuelan political economy. It served as an inspiration to the Commision for the Administration of Currency Exchange (CADIVI) and its successor, the National Center for Foreign Commerce (CENCOEX) – two hallmarks of United Socialist Party of Venezuela’s reign throughout the 2000s.

What looked like an unstoppable growth miracle, Venezuela faced its first decade of economic stagnation during the 1980s.

The IMF’s Mixed Bag of Reforms

Like any ambitious politician, Carlos Andrés Pérez re-entered the political scene in the late 1980s. His presidential campaign promised a return to the 1970s bonanza. But once in office, *Pérez would be surrounded with several uncomfortable truths. Not only was Venezuela heavily indebted due to its extravagant spending programs, but it was non-competitive at the international level thanks to its protectionist policies. Furthermore, Venezuela’s golden goose, oil, could not bail it out thanks to the low prices throughout the 1980s.