Socialism produced the crisis in Venezuela. Juan Carlos Hidalgo explains how a rich country came to experience hyperinflation and hunger:
[Hugo] Chavez dramatically increased the size of the government payroll and the reach of social programs. In fairness, patronage had been a common practice in Venezuela for decades. However, buoyed by more than $1 trillion in oil revenues during his time in office, Chavez took that practice to unprecedented levels. These social policies earned him popularity at home and plaudits from abroad — including from Nobel laureate Joseph Stiglitz — even though they were financially unsustainable. Today, an estimated 60 percent of Venezuelans are reportedly dependent on government handouts.
Chavez also nationalized and expropriated key industries, mostly in the agribusiness, commerce and food sectors. Driven by his ideological agenda, the government seized 1,168 enterprises and farms between 2002 and 2012. Most of them were run into the ground due to sheer incompetence, sleaze and negligence, decimating Venezuela’s productivity. According to Fedeagro, the leading agricultural association, the country imports 75 percent of the food it consumes.
Economic controls also played a major role in the destruction of Venezuela’s private sector. Currency and price controls were first introduced in 2003 when inflation and capital flight began to surge. At this point, the government became the sole official provider of dollars, a process that was characterized by cronyism and corruption. Countless businesses were starved of access to hard currency due to political reasons or lack of connections. Chavez also instituted harsh mandates on credit, ordering banks to channel an increasing share of their portfolio to mostly unviable pet projects. The tightening of price controls in 2011 and 2014 was the last nail in the coffin for many companies since it forced them to sell their products below production costs. This contributed to widespread shortages. […]
[F]or over two decades [PDVSA, the state-owned oil company] enjoyed administrative autonomy and built a reputation for efficiency and competence. That changed in 2003, however, when Chavez took over PDVSA, dismissed more than 18,000 of its most qualified employees, and replaced them with loyalists with little industry experience. Chavez weaponized PDVSA, using it to finance his social programs, prop up regional allies and invest in dubious schemes marred by widespread corruption. As a result, production has steadily declined since 2002. This phenomenon has further accelerated in recent years, with oil output in April falling toits lowest level since 1949.
[Juan Carlos Hidalgo, “Venezuela Is on the Verge of a Massive Humanitarian and Economic Collapse. The Culprit? Socialism.” Cato Institute, August 10]
