Three years after Chavez’s death, the people of Venezuela are facing the adverse ramifications of excessive government control.
The word ‘welfare’ has a very special place in the socialist lexicon. Across the globe, the term is used extensively by economists, policymakers and politicians who advocate for a larger economic role of the state, in order to purportedly promote a more fair and just society by virtue of increased taxation and redistribution of wealth so as to prevent the creation of a socio-political system that is beholden to corporate interests. While a part of this line of thinking is certainly based on good intent, what these individuals don’t account for (or understand) is the manic corruption and mismanagement of resources and functional inefficiency that governmental bureaucracy brings with it.
Look no further than Venezuela, a nation where inflation rates are expected to reach nearly 500 percent in 2016, according to the most recent estimates released by the International Monetary Fund (IMF) in April 2016. That is even higher than war-torn Syria. Venezuela is situated in a part of the world where socialism and communism have been allowed to run their unfettered course, owing to the ‘glorious’ revolutions of Morales in Bolivia, the Castro brothers in Cuba and Hugo Chavez, in the case of Venezuela.
When Chavez came to power in 1999, he promised to change the trajectory of Venezuelan politics through innumerable state-funded programs and limiting the activity of the private sector. The following year, Chavez launched the ‘Plan Bolivar 2000’ - a program that involved military generals engaging in activities to interact with the Venezuelan citizenry to reduce poverty - and nationalised nearly 1200 private companies. The CATO Institute of the United States estimates that around 50 percent of the $700 million allocated for ‘Plan Bolivar’ and other government-mandated schemes went unaccounted for. Chavez violated Article 314 of the Venezuelan constitution to use taxpayer money to buy an A319-133X - an aircraft that costs roughly $65 million.
Today, three years after Chavez’s death, the people of Venezuela are facing the adverse ramifications of excessive government control, through his policies under his successor and the current President Nicolas Maduro. A country that was known for its oil reserves and resource richness is now famous for its citizens having to stand for 18 hours in line for rations and food, whose production is entirely controlled by Maduro’s government. Basic ingredients like flour and rice cost 22 times more than the state minimum salary, and the plummeting oil prices in the market have hurt Venezuela disproportionately, since 95 percent of its national export revenue is from its oil reserves.
Price controls imposed by the government have created severe shortages of even sugar and fertiliser, thereby driving small farmers to other non-price controlled crops to generate higher income. This turbulent political scenario has created instability and unrest, deterring all banks from lending money to Venezuelan manufacturers and subsequently, lowering the availability of credit and money supply in the economy.
The unfortunate irony of the policies of this particular socialist regime is that the wasteful expenditure on social upliftment programs has created an inflationary gap, which has most affected the poorest sections of society, the very sections that those social upliftment programmes were meant to help in the first place. Maduro’s socialist policies and expropriation of the private sector, as a whole, serve as yet another example of how overbearing state involvement is detrimental to a country’s economic progress.
It proves to be detrimental by throttling the incentives of private firms and entrepreneurial individuals to create economic value, and creating a bureaucratic dependency cycle for the society’s most vulnerable. This, subsequently, opens up a vicious cycle of a black market for goods and services, more controls, higher corruption and embezzlement of public funds. Transparency International has stated that Maduro’s family has been syphoning billions out of the economy for alleged drug smuggling, a crime that members of his family have been implicated for earlier.
What proponents of socialism have failed to realise over time is that by preventing the market forces of demand and supply from deciding prices, and imposing its authority to forcibly take greater amounts of money from hardworking individuals, the state creates a toxic socio-economic environment for its people with multiple consequences, such as quashing the innovative ability of entrepreneurs and productive functioning of small businesses. Entrepreneurs and businessmen are people who create goods and services that benefit entire nations and the planet while bearing nearly all the risks themselves.
If the state were to take this ability away from the private citizenry and control the means of production in an economy, there would exist no incentive or scope for individuals to innovate constantly and create products and services that have helped humanity advance up to this point in 2016. Bureaucracy and total state control didn’t create the likes of Elon Musk and Steve Jobs. Freedom to function without them did.
Even the Nordic nations, the supposed zenith of welfare states, wouldn’t be able to afford such high levels of wealth redistribution if there was no wealth to distribute in the first place. The wealth that is created in these countries comes from allowing companies and individuals to function in the marketplace and interact with their respective society’s populace through market-driven forces of producers’ supply and consumer demand. The irony here is that of the old Marxist paradox - capitalism is a necessary evil in order to sustain socialism.
These European states can afford to follow their ‘welfare’ model of economics because there exists a thriving private sector that is allowed to function in their personal capacity, to create the money for collective redistribution which is free from the clutches of the government. But what happens when the state seeks to play an even greater economic role - on the same premise of collective welfare - to overthrow the market structure within which private individuals operate? What will happen if the state seeks to eliminate the economic hierarchy through centrally planned resource allocation, price control and market intervention?
Milton Friedman once said, “If you put the federal government in charge of the Sahara Desert, in five years there’d be a shortage of sand”.
And that is exactly what has happened in Venezuela. Despite being the largest holder of oil reserves in the planet (having nearly 300 billion barrels of oil), the Chavez-Maduro regime has completely mishandled the plentiful resources of the global oil market, with the government raking in almost no revenue for its functioning processes. The state can no longer provide food, education or healthcare to its people - the very essentials that advocates of socialism think that governments can always provide if given total control.
After witnessing African and Asian socialist leaders embezzle billions of dollars in national funds (Ferdinand Marcos in Philippines and Sani Abacha in Nigeria), Indira Gandhi imposing tax rates as high as 98.75 percent in India and the lack of economic sustainability that has plagued the PIIGS nations since the start of the Eurozone crisis, the situation in Venezuela should act as a sobering reminder as to just how dangerous government involvement in our lives and economic decisions can truly be.
I am reminded of a quote by India’s first Prime Minister, Jawaharlal Nehru. A self-avowed socialist, he once said, “Socialism is not only a way of life but also a scientific approach to solve social and economic problems.” If only Nehru had been alive today to repeat that quote to the hundreds of millions of Indians that were promised - but never received - literacy and upliftment from poverty during India’s tryst with socialism (under his own daughter’s administration), to the families of the countless Cubans who have died while fleeing the Castro government, or to the thousands of women and children who have to stand in line today for 18 hours in the sweltering heat to get their daily rations in Venezuela.
Anish Anandaram is a student of International Economics at The George Washington University in Washington D.C. He is a varsity level debater and is passionate about issues pertaining to public policy, economics and business, law and geopolitics, among other things. He’s also a huge fan of the Barclays Premier League football team Arsenal FC.