When global financial services firm Lehman Brothers – once the pride of Wall Street – buckled in 2008, it was cause for alarm across much of the West and many believed it signalled the beginning of the end for capitalism. But in Latin America, it prompted a swell of optimism that socialism’s time had finally come, with Venezuela and its brand of popular revolution emerging as the poster child for the left.
In South Africa, the ruling ANC sent delegations to soak up Venezuela’s inspiring Bolivarian revolution under the leadership of the charismatic Hugo Chávez. So, too, has the Economic Freedom Fighters upheld Venezuela as an example for South Africa. The party sent a delegation there in 2010 to study its model of nationalisation.
But now, as Britain plans its exit from the European Union, comparable joy from the South is nowhere to be seen. Instead, the pink tide – a movement of anti-American leftist ideology and politics, with Venezuela leading the charge – has collapsed into disrepair.
Hyperinflation of 720% and a worthless currency (the central bank can’t afford the paper to print new money) have resulted in severe food shortages, prompting riots, looting of shops and running street battles between security forces and protesters with about 50 people killed so far.
Power shortages mean public offices are only open two days a week and schooling takes place just four days a week.
A humanitarian crisis is setting in, with medical equipment in increasingly short supply and 80% of medicines unavailable.
Coca-Cola has halted production in the country because of sugar shortages and Caracas, the capital, is now the most violent city in the world.
The heat has subsequently been turned up on Nicolás Maduro, a former bus driver and the sitting Venezuelan president, who will be the subject of a referendum that seeks to remove him from his post.
For some critics, Venezuela’s spectacular downfall is clear-cut evidence that socialism does not work. For most onlookers, even those observing from the left, it proves that no economy can pin their hopes on the oil price to succeed – especially not one with an agenda of social transformation.
Dependence on oil
“Venezuela has the richest reserves of oil in the world, so to have this sort of situation is diabolical,” said Lyal White, director of the Centre for Dynamic Markets at the University of Pretoria’s Gordon Institute for Business Science. “And it can all be attributed to poor politics.”
Venezuela will be the first failed state in modern Latin America, the only other in the world facing a similar situation being war-torn Somalia.
Estimates are that inflation in Venezuela will reach 1 600% early next year. “It literally paralyses the economy,” said White. This, he added, impacts directly on the exchange rate, which is officially at 10 bolívares to the United States dollar but on the black market is closer to 1 100 to $1.
“There shouldn’t be electricity shortages [in a country] richly endowed with natural resources,” said White.
Venezuela again put all its eggs in one basket – in this case hydropower, the country’s main source of power generation. For three years, rainfall has measured 50% to 65% lower than usual and the current drought is the worst seen in 40 years. Dams have dried up and so has the power supply.
“This is the end for this country as we know it, it’s finished. And the rest of the region has left it to collapse,” said White.
Greatest asset to greatest liability
Venezuela went from being one of the left’s greatest assets to its greatest liability, said Patrick Bond, professor of political economy at the University of the Witwatersrand’s school of governance.
“You really felt the pink tide pulling in from the South as the US was sinking [in 2008],” he said. “It was an amazing moment. We thought socialism was next.”
A 2012 discussion note from the International Monetary Fund showed Venezuela was the only nation that had become more equal in the past 20 years.
For all the good that came with Chávez’s regime, it wasn’t enough to withstand a fall in the oil price.
“I think we have to look at Venezuela in the general context of extractivism,” said Bond, adding that Chávez was meant to inspire the pink left.
“They weren’t going to do free trade; they had ideas for a Bank of the South. They had tremendous assets and were funding things globally, and outreaching the Bolivarian revolution.” The problem was that Venezuela “talked left and walked right”, said Bond.
“You cannot pursue a social-democratic agenda if you are so subject to the whims of global financial and commodity markets.”
The oil price surged past $140 a barrel in 2008. This year it fell below $30 a barrel before recovering to around $50 a barrel at present.
Nigeria is perhaps even more vulnerable to the movements of the global oil price, but the big difference is that the Venezuelan government, in a paternalistic manner, provides for its people largely through social welfare programmes. But notably, “it never used the money to ensure food sovereignty, which is so vital,” said Bond.
Apart from the over-reliance on oil revenues, there was an over-reliance on Chávez before his death in 2013, said Bond.
Commodity boom doom
“The end of the pink tide coincides with the end of the commodity boom,” said White. “These are all oil-producing countries and they failed to diversify economies.”
The pink tide has been failing in a number of Latin American nations. In Venezuela, where the leadership can’t be pushed out, the bottom of the economy has fallen out instead, said White.
Venezuela began unravelling even under Chávez, he said. “The death of Chávez has immortalised him, he is no longer responsible for what is happening. The people don’t blame the regime and the Bolivarian revolution, but they are to blame.”
While there is a huge push to get Maduro out, there is no alternative to the ruling United Socialist Party of Venezuela.
“Some polls say 70% of people want him out,” said White. “But that means he still commands 25% to 30% of the population, which is bigger than any other opposition leader.”
Chávez worked to split up opposition parties and weakened them, said White. “The opposition is not unified enough to take them out. So the country is there for Maduro to lose. And no one really wants to take over the reins.”
White says the lesson is clear: “Populism does not work, accountability is essential. You can’t live on whims of ideological rhetoric and you need more inclusive politics.”
But the view that blames socialism for the scarcity of basic commodities – Venezuela’s most pressing economic problem for the past two years – passes over the real, concrete factors that are at play, says Steve Ellner, professor of economic history and political science at the Universidad de Oriente in Puerto La Cruz, in an article published in the Links International Journal of Socialist Renewal.
“Major causes include the plunge in international oil prices and the well-documented ‘economic war’ consisting of politically induced disinvestment on the part of the private sector.”
The US dollar is the primary weapon
Mark Weisbrot, part of the Union of South American Nations economic team that proposed an economic stabilisation and recovery plan for Venezuela, says the black market for the dollar is the primary weapon of mass destruction in this war.
“This system of a fixed, overvalued exchange rate with a huge black-market premium has trapped the economy in an ‘inflation-depreciation’ spiral,” Weisbrot says in an opinion piece originally published on thehill.com.
“As the price of the black-market dollar rises, importers who do not have access to dollars at the subsidised rate have to pay more, thus driving up inflation. As inflation rises, more people want their money in dollars, which pushes the black market price up further and the spiral continues.”
To exit from this trap, Weisbrot suggests the government switch to a floating exchange rate without currency controls, as Chávez did in February 2002.
In another piece, published on triplecrisis.com, Weisbrot says unpegging the exchange rate is not neoliberal, rather it is the black market that is “savage capitalism” – uncontrolled and unregulated.
“It is a way of subsidising capital flight and feeding the government’s enemies. You give them cheap dollars and they take them out of the country, worsening the balance of payments problem,” he says.
“By contrast, letting the currency float is a way of taxing capital flight: whoever wants dollars must pay more for them.”