The Economics of Tyranny in Venezuela

By Roberto Gonzalez and Liza Gellerman

Tuesday, April 30, 2019

Venezuela is a human catastrophe. The evidence is brutally visible and can no longer be explained away by apologists for tyranny. So many people enamored with long-debunked theories had high hopes that for Venezuela — despite the enormous historical and empirical evidence to the contrary — the promise of socialism would work and would not lead to the loss of liberties or drive the once-prosperous nation into poverty. Looking back on the 20th century, we should turn to some of the most prominent thinkers who lived under similar conditions and dissected their experiences for us to learn from. Venezuela’s crisis is a good example of harsh lessons learned by one generation but forgotten by the next.

In 1944, Friedrich Hayek warned in The Road to Serfdom that tyranny inevitably results when a government exercises complete control of the economy through central planning. Over half a century later, beginning with Hugo Chávez’s revolution, Venezuela began its own road to serfdom by expropriating thousands of businesses and even entire industries. The more fortunate companies left before it was too late, while the businesses that remained were handed over to the Venezuelan military, under whose oversight they were neglected into ruins. In a typical demonstration of class warfare, the government publicly vilified these business owners as unpatriotic, greedy lackeys of American interests, claiming that Venezuela’s poverty had been a direct result of their existence.

Chavismo created an atmosphere of distrust in which no one felt safe enough to invest in Venezuela. More important, the courts were no longer the place to get redress. Since 1999, the Venezuelan judiciary had been systematically stacked with judges loyal to the executive. Twenty years after socialism took hold of the country, Venezuela has hit rock bottom on every possible development index. Today, 90 percent of Venezuelans are living below the poverty line and inflation rates exceed 1 million percent. Record numbers of children are dying from malnutrition, and nearly all of the country’s hospitals are either inoperative or in critical need of basic medical supplies. Frequent nationwide power outages have left, at times, up to 70 percent of Venezuela in darkness. Chávez’s socialist agenda purported to be in service of the entire nation, but as Hayek reminds us, “the pursuit of some of [the] most cherished ideals . . . [produces] results utterly different from those which we expected.”

A prime example of this divorce between intentions and actual consequences is price controls. In 2014, Venezuela’s new Fair Price Law capped the price of goods and services and established a sentence of up to 14 years in prison for those caught “hoarding,” “overcharging,” or “trafficking food.” There is ample economic history revealing the consequences of price controls, which disrupt the equilibrium price set through the interaction between supply and demand. The price ceilings in Venezuela’s case effectively led to long queues, empty grocery stores, and, ultimately, starving citizens. The government set prices artificially low, which resulted in a skyrocketing demand and the overconsumption of basic goods. On the other hand, producers started to make less because it had become unprofitable to sell their products within Venezuela. Instead, they began sending their goods abroad or to the black market, where sellers face prison time for their activity and usually need to pay kickbacks to continue operating. These risks are reflected in higher prices. The real-life consequences of Chavismo’s misguided policies are telling: Venezuelans lost an average of 24 pounds in the year 2017.

Nicolás Maduro’s authoritarian rule over Venezuela is the next piece of the Hayekian puzzle. Chávez’s hand-picked successor has further plunged the country into devastation. Hayek’s explanation of “Why the Worst Get on Top” in his seminal book is particularly helpful in understanding the current state of Venezuela at the hands of Maduro. In Hayek’s words, at some point a dictator has to “choose between disregard of ordinary morals and failure,” failure meaning the loss of power over the lives of the people. This is the reason, Hayek argued, that the unscrupulous and uninhibited are more likely to stay in power in a society tending toward totalitarianism. This is, again, tragically accurate 75 years after the publication of The Road to Serfdom. Maduro and his inner circle have responded to the outcry for change from the hungry and desperate by unleashing ultraviolent revolutionary collectives in the hopes that millions will get the message, retreat to their homes, and watch — helplessly — as the night of dictatorship keeps falling upon them.

While the majority of Venezuelans suffer, Maduro dines at luxurious restaurants and treats his family to extravagant skydiving adventures. The president’s corrupt behavior is a reflection of his inner circle, which is composed almost entirely of crooks. To name a few, Diosdado Cabello, Chavismo’s second in command, who served as president of the Constituent Assembly under Maduro, is the head of an international drug-trafficking organization known as the Cártel de los Soles (Cartel of the Suns), along with Néstor Reverol, minister of the interior and justice. Maduro’s nephews, known in the media as the narco sobrinos, are imprisoned in the United States for their involvement in the same drug trade. Meanwhile, Maduro’s former vice president, Tareck El Aissami, now Minister of Industries and National Production, has effectively acted as an ambassador to the terrorist organization Hezbollah, inviting its militants to train with FARC rebel forces in Venezuela. These are just some of the people who have led the country into chaos and who have dutifully followed Maduro while the rest of the country suffers under starvation, looting, illness, and extreme poverty.

Each day that Maduro remains in power represents another day in which the world concedes to the destructive tenets of authoritarianism. The Venezuelan people will be rid of these thieves sooner or later, but the world should have learned a lesson from thinkers such as Hayek the first time around. Now the international community can choose to heed his timeless warnings by taking action and elevating the pressure that’s already been put on the Maduro regime. “Only if we understand why and how certain kinds of economic controls tend to paralyze the driving forces of a free society,” Hayek wrote, “can we hope that social experimentation will not lead us into situations none of us want.”