Venezuela: A Cautionary Tale

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Tales From Teodoro: Boots on the ground in Venezuela

“Freedom is never more than one generation away from extinction” ….Ronald Reagan

                                                       Venezuela : A Cautionary Tale                                                                 

                                                                   by Ted Hinchman

“Freedom is never more than one generation away from extinction” ….Ronald Reagan

There is a phrase common in the recovery community it would serve us well to remember, “terminal uniqueness”. People want to think they’re different, special. In terms of recovery, nobody is different, nobody is special…but nobody wants to hear that. It is that refusal to accept reality that leads to the fact that only one out of ten people recover.

I’m leading with this because I hear an all too often refrain when I caution people about the dangers of socialism and what I witnessed in Venezuela. It’s either, “That could never happen here” or “This time will be different”. My response is a combination of “terminal uniqueness” and Hayek’s “Fatal Conceit” of human reason.

To “That could never happen here” I respond by asking “Why not? What makes us so special?” The consensus seems to be that our Constitution will protect us. They are generally surprised to learn that Simon Bolivar, The Great Liberator, fashioned Venezuela’s Constitution after the US Constitution and look what happened to them. “But we’re different”…Oh, how so? Hugo Chavez said everything today’s Democrats are saying and hearing those who vote Democrat speak is like being in a Chavista supporter echo chamber.

To “This time will be different”, regarding socialism’s past failures I have pretty much the same response for the same reasons…”Why will it be different? What makes us so special?” Socialism has been tried in all kinds of countries under just about every circumstance imaginable and it’s failure rate is 100%. The only reason it keeps being recycled is that it sounds so good. The government will take care of everyone’s needs and security and all you have to do is comply and give up a little of that freedom you so jealously guard.

“Those who would give up essential liberty, to purchase a little temporary safety, deserve neither liberty nor safety” …Benjamin Franklin

In recent days we’ve seen a lot of before and after photos of Florida. They really help to grasp the magnitude of the devastation caused by hurricane Ian, a natural disaster. Allow me to paint you a before and after picture of Venezuela to help you grasp the magnitude of the destruction caused by 21st Century Bolivarian Socialism, a manmade disaster, a Chavista made disaster.

It was the mid-nineties when I first experienced Venezuela. I took a vacation to Margarita Island, loved the place, and bought a condo on the ocean for future vacations and my eventual retirement. I loved everything about the place, the wonderful people, the delicious food, the gorgeous weather, and it was very inexpensive.

At that time Venezuela was a very promising emerging market country, poised to climb out of third world status. The economic reason was, of course, Venezuela has the largest proven oil reserves in the world. At the time, PDVSA (Venezuela government-owned oil company) was producing over 3 million bpd (barrels per day). It was a well structured, well run oil company, brimming with experienced professionals at all levels. It was one of the most profitable companies of any kind, year in and year out (some years it was number one) and the envy of the oil producing world.

The government in Venezuela was relatively stable, a democracy with a strong Constitution, as previously mentioned, based on the US Constitution. The society was decidedly consumerist with Venezuelans being the world’s number one consumers, per capita, of personal care products. Businesses and industries of all types, covering every sector, flocked to Venezuela. Dozens of airlines serviced Venezuela and the Concorde flew to Caracas.

There were, however, some serious issues in Venezuela. Chief among them was that 50% of the population lived in poverty, although that had been a problem for a long time. There was also a lack of access to healthcare in poor neighborhoods and rural areas. Conditions like these always make the possibility of governmental change likely.

In 1998 that change came to pass with the election of leftist/Marxist Hugo Chavez. He was a charismatic former paratrooper who identified with the common people and he sold them on the idea that his “21st Century Bolivarian Socialism” would change everything and solve all their problems. It was a new way forward (His version of “This time will be different”). Everybody bought into his “Revolution”, the Venezuelan people, the international media, the Democrats in the US, leftists around the world, celebrities, everybody!

In the early years of his time in power I saw one of his rallies on TV and I knew things were headed in a dangerous direction. He was in a square in Caracas and pointed over his shoulder. “Who owns that building? We’re taking it for the Revolution!” The throng surrounding him went wild, madly cheering for the government taking someone’s property. They should have been cheering for someone quoting Margaret Thatcher. “The problem with socialism is that you eventually run out of other people’s money”. They, and the world, would learn soon enough.

Over the Chavista years the Venezuela government would make more than 5,500 direct confiscations and expropriations. (source: el paris). To put it in perspective, during the Chavez years, 1998 – 2013, there was also a socialist government in Ecuador. Over the same time frame they made just over 100 expropriations. The problem with expropriations is the same problem you have with socialism. When the government take over an enterprise it experiences a drastic drop in productivity, if it survives at all.

The good news for Venezuela was that Chavez did some things in his early years to benefit the poor, such as his “Barrio Adentro” program, building hospitals and clinics in poor neighborhoods and rural areas that previously had little to no access to healthcare as well as raising the minimum wage and other reforms.

The bad news for Venezuela was (and always is with socialism) the success of all these programs and reforms was temporary. If Margaret Thatcher was still around she would say “See…they ran out of other people’s money”. That’s exactly what happened leading to the worst economic and humanitarian collapse in the history of the Western Hemisphere.

During the Chavez years the Venezuelan government was awash in money due to record high oil prices that remained elevated for years…but that wasn’t enough for the Chavistas. Chavez, and later Maduro, went on an unnecessary and unprecedented borrowing spree with loans totaling over $60 billion from China and billions more from Russia.

With all this money floating around it would have been easy (and responsible) to establish a sovereign wealth fund to sustain social programs for the people for generations even as they allocated money to get all these programs up and running. But that’s not what they did. The “Barrio Adentro” program, to bring healthcare to the poor neighborhoods and rural areas, is the perfect example of how “21st Century Bolivarian Socialism” approached the needs of the people, and ultimately failed them. Instead of using the abundant oil money or loan money they diverted funds from the existing hospitals to build and staff all the new hospitals and clinics thereby guaranteeing the deterioration (and eventual demise) of hospitals already in operation. This is emblematic of the Chavista mismanagement in every sector of the economy and life in Venezuela.

In 2013 Chavez died of cancer (he chose to be treated in Cuba, not Venezuela) and the baton of “21st Century Bolivarian Socialism” was passed to Nicolas Maduro. At the same time oil prices fell, eventually reaching under $30 a barrel, a big deal when you get 96% of revenue from oil exports. And then it got worse! Following the Chavista MO exhibited with healthcare, the production of PDVSA declined to previously unimaginable levels, one month under 200,000 bpd. (note: most of the experienced professionals were gone from the Chavez purges, replacing oil professionals with inexperienced Chavez loyalists). And then it got worse! As all the Venezuela/China joint ventures failed the Chinese refused to loan more money to Venezuela and Russia refused new loans as well.

With very little revenue coming in and no more credit the Maduro regime did the only things it could do (other than reverse course on its socialist policies). It cannibalized its gold reserves to fund the government internationally and printed money in bolivares (local currency) to fund the government domestically. (Result – 4 years of hyperinflation) All services for the people were allowed to wither and die as the government’s sole focus was to remain in power.

Fortunately for the Maduro regime and unfortunately for the Venezuelan people, Chavez, having learned at the foot of Fidel Castro, had set things up to provide for the Chavistas to hold onto power. At the height of his popularity he re-wrote the Constitution. Everyone loved the new way forward of “21st Century Bolivarian Socialism”, why not a new Constitution? He also placed Cuban “advisors” at every level of the government and military, reporting directly to him, to prevent anything that might threaten his power.

Then Maduro took it to the next level and packed the TSJ, Venezuela Supreme Court (sound familiar?), giving him complete control. He could do anything he wanted, pass (or bypass) any law, and the TSJ ratified it as constitutional. To add insult to injury he appointed a convicted murderer, a guy Maduro and his wife had known for years, as head of the TSJ. Now oppression and repression could really get into high gear and Maduro’s security forces would commit over 1,400 extrajudicial killings per year and that practice continues today. (Remember, the widely reviled Pinochet regime in Chile committed between 3,000 – 5,000 extrajudicial killings in 17 years)

There simply isn’t enough time or space here to get into all the details of the disaster that was, and is, the Maduro years, 2013 – present. Suffice to say, every aspect of life and society in Venezuela was utterly destroyed. Chavez headed Venezuela toward the cliff and Maduro cast it into the abyss. “21st Century Bolivarian Socialism” (as have all other attempts at socialism) proved to be an abject failure.

This brings us to today. The poverty rate has gone from 50% before “21st Century Bolivarian Socialism” to 96% and 75% of Venezuelans live in extreme poverty. (Remember, the UN metric for extreme poverty is a dollar a day and the Venezuela minimum wage isn’t even half of that) The electric grid suffers constant blackouts and there is a critical shortage of fresh water. There is an 85% shortage of most medicines commonly available in the rest of the world and previously eradicated diseases have made a horrifying comeback. Unlike prior years when there was no food available due to Chavista policies like price and currency controls as well as expropriations there is now food on the shelves, much of it imported, but Venezuelans can’t afford it with the minimum wage being UNDER $14 A MONTH! (it’s been as low as 67 cents a month under Maduro) Oh, FYI, the minimum wage before “21st Century Bolivarian Socialism” was between $200 – $250 a month.

The Maduro regime hardly gets enough revenue to survive from oil exports having destroyed the production capacity of PDVSA. It will take many years and many billions of dollars of foreign investment (their history of expropriations should make investors quite comfortable) to recover, even partially, the lost production. They have plundered the gold reserves Chavez repatriated to Caracas  to protect them for “the people”. They seem to be surviving economically by augmenting the little revenue they get from oil with illicit revenue from trafficking operations which provide $8 -$9 billion a year. They are a narco-dictatorship, a mafia state, without an independent judiciary, free and fair elections, nor Human Rights. 6.81 million Venezuelans (the largest number of migrants in the world) have fled the Maduro regime and 21st Century Bolivarian Socialism with no end in sight. Simply put, Venezuela is a failed state that won’t recover until Maduro is gone. It is a man-made disaster, a Chavista made disaster.

That, my friends, is what we can look forward to if we don’t take back control of our country. Yes, it can happen here!

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