Venezuela in Chaos

Venezuela has enormous oil reserves, it has been selling oil for nearly a hundred years, and its people are impoverished. So what went wrong? Some say it is a fine example of the failings of socialism, but in fact it was plutocratic capitalism that set the rot in place.

Venezuela was possibly the richest country in South America before it struck oil. Because there was so much of it, foreign oil companies poured in, as did their money. This caused the local currency to increase wildly. The oil companies paid locals huge salaries or wages, and the growth was so pronounced that any reasonable contractor worked in the oil industry. That meant that people left agriculture and manufacturing by locals was squeezed for capital.

Worse, when the politicians become corrupt, which is easily done when law and order is weak and there is money flowing like water, the average person was overlooked and they slid into poverty. At first the plutocrats simply walked off with the profits but by 1950 the government reformed the industry and required half the profits to go to the state. This had the effect of making the government essentially totally dependent on oil money. For Venezuela the effect has been so dramatic that oil now accounts for about 98% of its exports, and up to 50% of its GDP. In the 1970s, the Venezuelan government received huge incomes, which led to rampant mismanagement and embezzlement. In the 1980s oil prices plummeted and Venezuela sustained rampant inflation and massive debts, in part due to government investments offshore that were not exactly wise. The IMF gave its usual recipe: austerity, and there were major riots. Austerity hurts the poor, while the rich remain unscathed, which may be why the bankers of the IMF favour it.

In 1998, Hugo Chavez was elected President on a socialist pledge, and while he did significantly improve the lot of the average Venezuelan, he also badly mismanaged the oil industry and the economy in general. Chavez also bailed out Cuba by supplying it with oil, and also managed to greatly increase national debt. His government was authoritarian, and when he was replaced by Maduro, the latter has probably become more authoritarian.

Maduro inherited a mess, and he was not gifted with luck. Between 2014 – 2016, oil prices slumped by a factor of three. The government gets out of its debt problems by inflating the currency, which may be running at a million per cent now. The effect of this is the impoverishment of the middle classes. The very rich get richer by picking up assets at a huge discount in forced sales. Currently, 90% live in poverty.

There are various opinions on what should have been done. The most obvious one is to have strong law and order and fiscal responsibility. The second is to ensure the wealth is controlled. A good example of this is Norway, where oil contributes 80% of its exports, but only 22% of its GDP, and huge reserves are being held for the future. Another good example where I have lived was Calgary. The state government poured money into health care, which was extremely cheap when I was there, and they had excellent roads and general infrastructure. My opinion is that such resource-rich economies must invest a large amount of the income in broadening the economy. In Venezuela’s case, there has been economic broadening, although agriculture contributes only 3% of GDP. It is largely a food importer, for no good reason. Nevertheless, while exports total $32 billion, imports only total $17.75 billion. The problem is with government finance. It has income of almost $93 billion, and expenses roughly twice that.

Maduro replaced Chávez in 2013 and narrowly won an election. There was a recent election that Maduro also won, but which the opposition boycotted. There are accusations that the elections would be rigged, and since then there are accusations that they were, but if there were no opposition candidates that seems somewhat moot. It is one thing to complain that elections were rigged; an entirely different matter to assert they were going to be rigged. Two weeks later, Juan Guaidó, leader of the legislature, declared himself acting President. The US government has declared support for Guaidó and refuses to recognize Maduro, and threatens that if he does not step down, they will make him. They declare the election was illegitimate, but do not cite any grounds. Exactly how Guaidó declaring himself President is more legal eludes me. If the opposition did not stand, it is hard to see how Maduro could not win, and if simply boycotting an election was sufficient to overturn an election, why Mr Trump could consider what would happen if Hillary had boycotted their election. The US claims the majority prefer Guaidó, but arguably the majority voted for Hillary, and I don’t see Trump stepping down. Nor should he, at least on that ground. The rules are the rules. Trump has even hinted at military intervention. Other countries have backed Guaidó. Macron has argued he should note the protests on the street. So should Macron. Hypocrisy runs strong when politicians have a deep problem and they can divert attention from their own failings.

The Venezuelan military is at this moment behind Maduro, and while that is the case, short of a massive US invasion, he is likely to stay there, and the Venezuelans are likely to stay poor. US sanctions are not helping, but US sanctions have been there for quite a long time and are not recent, although the recent freezing of oil money will hurt the poor even more. The history of US intervention is not good, the worst example being, in my opinion, the removal of Allende in Chile, which occurred because (a) he was a socialist, and (b) US corporations could control the copper. The fact that Pinochet murdered a large number of Allende supporters bothers not the US conscience. I heard one speech where it was stated that control of the oil industry would make things better for Venezuela and the US. So at least someone in Washington thinks US corporations should have the Venezuelan oil.

So how do they get out of this mess? Who knows? The economists say Venezuela must diversify its economy and do a number of other things, but the problem is with most of the population impoverished, they cannot start much. One thing I have learned while running my own business is that if you have no money, you are screwed. So what will happen, other than the poor becoming poorer? Who knows?

Election hangover

Recently, I finished reading the last of “Dictator”, the third of Robert Harris’ trilogy nominally about the life of Marcus Tullius Cicero, but just as much about the collapse of the decaying Res Publica. The aim of Roman politicians was to gain power, or imperium. Few actually wanted to achieve anything, other than to put one over their “enemies” (any other Roman who was not helping them gain their power) or to gain the right to govern a province and get rich from the tithes they would impose. There were exceptions. Cato, and to a lesser extent, Cicero, wanted to maintain the “principles of the republic”, even if these were somewhat ill-defined and were bendable for convenience, while Gaius Julius Caesar genuinely wanted reforms, and was prepared to stamp down on the corrupt practices that he, too, had once engaged in.

In some ways, not a lot changes, although everything now is a lot milder. The vitriol slung between Trump and Clinton would be nothing for the times of the Res Publica. Trump said he would have Clinton investigated; Clodius was quite happy to organize a gang to beat a senator senseless. Even Pompey seemed to be almost afraid much of the time, but of course he obeyed the rules and disbanded his legions before returning to Rome. Caesar was not afraid, but then Caesar did not disband his legions, and he got assassinated.

I am always amused at the straw-clutching assertions made by the losing side. Thus we hear that Clinton won the popular vote. She did but that is irrelevant. About half the eligible population did not vote, and there are at least two possible reasons why not. One is, lack of interest. Another is that for many there is the feeling that if you are in a state that has no chance of changing, and you are in the minority, there is no chance your vote will matter, so why bother?.

Another thing that amuses me is the hand-wringing that went on after Trump won. Horrors! The sky was falling! If they were that concerned, why were they not out campaigning for Clinton? My personal view is that there were so many wild statements flung around during campaigning that we could conclude that such statements are necessary to win the election. If so, there could be a serious withdrawal from most of such statements by the winner.

So, is the sky falling? Is Trump going to be a total disaster, as some of the more noisy ones seem to assert? He won by making the most outrageous statements, but arguably that was what he had to do to win with the current voters. If that is true, then guess were the fault lies. But equally, if he is a man prepared to do whatever is required to achieve a goal, then he may very well retract from many of these positions when the goal is to be an effective president. I suppose we have to wait and see how much power Trump will actually have, but the American constitution is specifically designed to limit the power of any president. The president has to do deals with Congress, and even if Congress is majority Republican in both houses, during the election campaign it was clear that not all Republicans are going to back Trump no matter what. Further, Trump seems to be showing signs of dropping his most outrageous assertions.

I think it is far too early to guess what the Trump presidency will be like. My guess is the fight against global warming has not been done favours, although the US has signed the Paris agreement, and I doubt that will be revoked. Trump’s tax plan is similar to what Paul Ryan wants, so that may well get through. International trade may well suffer, and the US could hurt a country like New Zealand. However, whatever happens, the sky will not fall.

That raises the question, what would it take to bring America to its knees? Strictly speaking, it should be impossible, but there is one way: the bulk of the population cooperates in bringing it down. After all, that was why Rome fell. The average Roman decided that the Roman governance was worse than whatever the uncivilized masses could do, at least once the initial rape and pillage was over. So could anything like that happen now, in America? Of course not. However, if you want to have nightmares over something like that, on Dec 2 my ebook ‘Bot War is available, and if nothing else, it might show you how impossible it is. In this story, the general problem is not the terrorists and their robotic war machines, but rather the general population have no faith in their government. Is that lack of faith justified?