The disaster that is Venezuela

Review of Things Are Never So Bad That They Can't Get Worse: Inside the Collapse of Venezuela by William Neuman

In 1978, I met 2 Venezuelans, one of them a “socialist”, the other hard right. They immediately got into a vehement argument, insults flying with absolutely no possibility of compromise or mutual understanding. I had never seen anything like it. It was my introduction to living abroad, to debate about socio-economic systems, to how hardened ideologies could be. They were comical in their estrangement, closed-minded and unthinking, each way out on a limb. Now that Venezuela’s economy has collapsed by about two thirds and its society is imploding, I wonder what happened to those 2 guys. Why is Venezuela in such dire straits? To what extent is the US responsible? What can be done?

Neuman starts the story with Simón Bolívar, the revolutionary who liberated the northern portion of the South American continent. His united territories quickly fell apart, Venezuela becoming less a nation than an agglomeration of caudillo territories. In this way, Neuman explains, no sense of national purpose or solidarity could ever emerge, which in part explains the polarized mentalities of my 70s acquaintances. It was only with the exploitation of oil in the 1920s – its reserves are the largest known in the world – that a viable notion of a nation was imposed, this time under a dictator. Venezuela is oil.

With the first OPEC embargo in 1973, Venezuela (newly a democracy) suddenly was richer beyond imagination, multiplied again with the late 1970s oil-price shock. Unfortunately, this led to consequences well known to economists: when demand for the national currency rose as importers sought to buy its oil in international markets, the Bolivar became so valuable that Venezuelan industries could not compete against foreign producers with weaker currencies. In other words, it was easier to import everything than to develop national industries. Still, democratic governments attempted to redistribute wealth as well as invest in core industries such as steel and aluminum foundries; unfortunately, they proved catastrophically inefficient and unprofitable, as did the agricultural sector. As a result, the economy remained fatally vulnerable to fluctuations in the price of oil. It also fostered the mentality of a kind of entitlement, according to which everyone could prosper off of redistributed oil revenues.

Venezuela performed OK in this way into the 1980s, when the system’s corruption and lower oil prices combined into a severe economic recession. Chavez entered the void, first in attempting a coup, with 5 years in prison, then as a populist of the left. Once he got into power, governing solely from television (i.e. he is the prototype of the Reality TV presidency!), his policies created a new set of problems. With an official exchange rate set by law to make a strictly limited amount of US$ available for most citizens, he created rampant black-market profiteering. This sapped entrepreneurial energies, keeping the deeper economy under-developed. Nonetheless, because the price of oil was appreciating during his presidency, Chavez was able to redistribute much of this wealth, also encouraging a free-lunch mindset as he gave away houses, paid for citizens’ vacations abroad, etc. His much vaunted charisma, Neuman informs us, was simply the price of oil. Unfortunately, the majority of his innumerable projects, such as fancy hospitals or a national rail system, stalled for lack of follow through, wasting billions, often merely for opportunities to appear on television as if he were accomplishing something, anything. In addition, because Chavez surrounded himself with yes men, he allowed horrendous corruption to flourish.

Chavez further complicated the situation by blaming the US for the country’s problems while cultivating an alliance with Castro and other leftwing regimes. In reaction, America’s trade sanctions played into his hands, giving Chavez an excuse for all that went wrong if also increasing Venezuela’s vulnerability. It should be noted that, according to Neuman, the overwhelming majority of Venezuela’s problems are self-generated and not due to American sanctions.

Once Maduro took over after the death of Chavez, the global collapse in the price of oil put Venezuela into a death spiral. Having amassed an unprecedented debt with oil revenues as collateral, Venezuela found itself unable to make payments to international banks. The abrupt end of credit and declining oil revenues crippled the state, which became almost completely dysfunctional. Electricity generators failed, sufficient food could no longer be imported, nor could medicines or machinery parts. Law and order disappeared for large portions of the population. It is no wonder that 20% of the population has left the country, with no sign of a slowdown in emigration. Neuman’s shocking descriptions of the plight of ordinary Venezuelans makes for dreary reading.

Neuman is very critical of US attempts to somehow bludgeon the population by trade sanction into rebellion against Maduro’s regime. It isn’t working because, he says, Maduro can blame the US as the source of Venezuela’s problems. Furthermore, Venezuelan citizens are simply too exhausted and hungry to fight – every day is a struggle to survive. Notably, Neuman is very hard on the Trump Administration, which he portrays as ignorant and capricious in the strangely uninformed and personalized way that Trump makes decisions. It is ironic that Trump’s reality TV presidency owes so much to the pioneering example of Chavez.

Neuman’s book is one of the bleakest I’ve read in recent years. Perhaps it is politically convenient for American politicians to thrust Venezuela into the role of whipping boy, but it only worsens the lives of its citizens and severely exacerbates the refugee crisis at the US border. Unfortunately, policy solutions are outside the purview of Neuman’s book, which is descriptive and analytic but not prescriptive. If you want to understand what has happened to this once-rich and now-failing state, this is a great book to start with.