Early in 2007, after winning another six-year term as president, Hugo Chávez announced his plan to nationalize Venezuela's largest telecommunications company, CANTV, hinting at wider nationalization intends to come.
\”All that was privatized, let it be nationalized,\” announced Chávez, who had run under the banner of democratic socialism.
Nearly a decade and a half later, on the brink of mass famine along with a growing energy crisis, Venezuela is now moving in the opposite direction.
According to Bloomberg News, Venezuelan president Nicolás Maduro has quietly begun transferring state assets into the hands of private owners in an effort to reverse the country’s economic collapse.
\”Saddled with countless failed state companies within an economy barreling over a cliff, the Venezuelan government is abandoning socialist doctrine by offloading key enterprises to personal investors, offering profit in exchange for a share of revenue or products,\” write Caracas-based journalists Fabiola Zerpa and Nicolle Yapur.
The transfer, which was not announced publicly but was confirmed by \”nine individuals with knowledge of the matter,\” reportedly includes a large number of coffee processors, grain silos, and hotels that were confiscated as part of Venezuela’s widespread nationalization that began under Chavez.
In some methods, Venezuela’s plight is the most unlikely of stories.
In 1950, Venezuela was one of the most prosperous nations in the world. It ranked one of the top 10 in GDP per capita and had a labor force with higher productivity than the United States.
Venezuela's economic growth began to stall in the mid 1970s, however, after it nationalized the petroleum sector, which resulted in a surge of government revenue and public spending. It's estimated that Venezuela brought in $7.6 billion in 1975 alone from nationalization . This led to an unprecedented surge of public spending. John Polga-Hecimovich, a professor of political science in the U.S. Naval Academy, said the Venezuelan government spent more from 1974 to 1979 than in its entire previous history.
Despite the development in government spending, the political situation remained relatively steady. In the late 70s, University of Michigan political science professor Daniel H. Levine stated that \”Venezuelans have achieved one of the few stable competitive political orders in Latin America.\”
However, Venezuela's flirtation with socialism would eventually turn into a love affair.
In 1998, Venezuelans voted in Chavez, a populist and self-described Marxist. He was re-elected in 2000 and in 2006 , after which he began to nationalize various sectors from the economy – including agriculture, the steel industry, transportation and mining – and confiscating more than a thousand companies, farms and properties.
At time of Chavez's death, his socialist policies were heralded by Salon as an \”economic miracle\” – but in reality the Venezuelan economy had been in a free fall.
By 2021, using the price of oil collapsing, Maduro's government admitted it had been in severe recession and Venezuela was struggling with the highest inflation in the Americas. By January 2021, the nation was on the verge of \”complete economic collapse.\” Not long after, the Venezuelan government abandoned any pretense to be a \”democratic\” regime.
A 2021 United Nations report figured there were \”reasonable grounds to believe that\” Maduro's government had used special forces to kill a large number of political opponents in \”extrajudicial executions.\”
To date, it is believed that more than 5 million Venezuelans have fled the nation to escape economic ruin and political oppression.
Privatization to the Rescue?
The collapse of Venezuela, once the most prosperous country in Latin America, is almost not a secret. But Maduro's pivot toward private enterprise so that they can stabilize the collapsing country is a new revelation.
It's not unprecedented, however.
\”This process is comparable to the privatization process in Russia in that assets are transferred to private local companies and also to investors from countries allied to the government,\” Asdrubal Oliveros, head of economic consultancy Ecoanalitica, told Bloomberg.
Rodrigo Agudo, head of the Venezuela Food Network, told this news agency that the regime instituted \”a wild capitalism\” by ceasing the collection of taxes on certain companies, liberalizing licensing on imports, and convincing military and other connected officials to invest in certain businesses.
Ramon Lobo, a lawmaker with the ruling socialist party and a former finance minister, said the arrangements tend to have time limits and work much like a concession. Information mill allowed to invest and manage the asset, with the government then taking a percentage.
\”We believe this is positive because it is the synchronization from the public sector with the private sector,\” said Lobo. \”The state provides a supervisor and receives compensation.\”
Economic Fascism is Not Capitalism
In one sense, the revelation of Venezuela's privatization push is a clear positive development.
Maduro's effort to quietly form private-public partnerships, a method that began in 2021, reveals the entire failure of Venezuela's command economy. Bloomberg points out, for example, that once-successful food processing plants have been \”mostly idle\” since being seized by the government, plants that could happen to be feeding a starving population.
This revelation is both tragic and infuriating, but it's not surprising. By their very nature, command economies are doomed to fail because they lack the basic incentive and price structures that are present in a market economy.
It seems that after much pain and suffering, even socialist leaders in Venezuela have conceded they cannot run an economy with enough efficiency to avoid economic ruin.
\”It is much more than a metaphor to describe the price system like a kind of machinery for registering change, or a system of telecommunications which helps individual producers to watch precisely the movements of a few pointers, being an engineer might watch both your hands of a few dials, in order to adjust their activities to changes which they may never know more than is reflected within the price movement,\” the Nobel Laureate economist F.A. Hayek wrote.
Many may be tempted to think that Maduro was just a poor or stupid person. But Ludwig von Mises reminds us the quest to find the right person to operate a command economy is a futile one for this very reason.
\”It has not been realized that even exceptionally gifted men of high character cannot solve the issues created by socialist control of industry,\” Mises observed.
It seems that after much pain and suffering, even socialist leaders in Venezuela have conceded that they cannot run an economy with enough efficiency to avoid economic ruin. But while returning enterprises to personal owners is a step in the right direction, it's hardly accurate to call Maduro’s strategy \”capitalism.\”
The Maduro government is still using everything from price controls on food to minimum wage hikes to currency manipulation to manage its economy, not to mention selecting which businesses get to participate in its privatization efforts . When it comes to overall economic freedom, Venezuela ranked 179 out of 180 countries in 2021 Body place ahead of North Korea and something behind Cuba.
At best, Venezuela's current economic climate is a form of fascism, which Sheldon Richman once referred to as \”socialism with a capitalist veneer.\”
So while applauding Venezuela's small but important step, we should not lose sight of an observation from Nobel Laureate economist Vernon Smith, who in 2021 noted that prosperity would return almost at once to Venezuela if politicians repealed their harmful policies and unleashed the strength of markets.