By Kenneth Rapoza for Forbes
News flash! Socialism in poor, closed-door economies is a failure. So says Nicolas Maduro, who happens to be the president of one: the biggest failed state in the Americas, poor ol’ Venezuela.
In a surprising twist on Monday, Maduro went against the Socialists United (PSUV) playbook of blaming Washington (especially the CIA) for Venezuela’s troubles.
“The production models we’ve tried so far have failed, and the responsibility is ours—mine and yours,” Maduro told the PSUV party congress.
Venezuela’s economy is a disaster. The country faces a massive brain drain, with middle-class people leaving in droves to Madrid and Miami. Lower-income Venezuelans are trekking across borders into Colombia and Brazil.
Inflation is off the charts, up thousands of percentage points over the last few years, and up hundreds of percent this year alone. The currency is useless. Some towns have taken to bartering.
Venezuelan GDP will contract by more than 10% again this year. For this oil-rich country, once the richest in South America, the reactionary socialist policies enacted under decades of PSUV rule have been completely ruinous. The fact that Maduro finally admits it is telling, and no small feat on his behalf. Maduro should be commended for it.
“Enough with the whining,” Agence France Press reported him saying. “We need to produce with or without [outside] aggression, with or without blockades, we need to make Venezuela an economic power,” he said.
PSUV was created by the late Hugo Chavez. Once one of the most popular leaders in Latin America, the red beret-wearing anti-imperialist had luck on his side for most of his governing years. High oil prices kept the one-trick-pony Venezuelan economy humming.
But Chavez was a dyed-in-the-wool “Open Veins of Latin America,” “Wretched of the Earth” socialist. His leadership comes from a position of revenge for years of colonial pillage and foreign corporate malpractice, particularly those displacing and killing indigenous populations. As a result, Chavez saw capitalism and, to a large extent the United States as an enemy of the state.
Washington helped the Chavez storyline by antagonizing him at every turn, convincing PSUV voters that they were still being persecuted by a foreign power. He survived a coup attempt in 2002, orchestrated by or at least with the blessing of U.S. intelligence forces, according to mainstream media reports years later. Venezuelans were not surprised. Chavez became that much more popular.
But to many, PSUV is more than a bunch of postcolonial Chavistas who believe socialist policies are the way to govern. PSUV is also the party of narcotraffickers and other unsavory characters. The Treasury Department lists Maduro’s recently deposed vice president Tareck El Aissami as a drug trafficker. He stepped down this summer, some say as a fig leaf to the Trump Administration. El Aissami is sanctioned from traveling to the U.S. or buying and selling U.S. assets. He says he owns no assets in the U.S. and denies all allegations against him.
The bulk of PSUV politicians, however, do not have El Aissami’s background nor face allegations of wrongdoing. But one thing they have in common is the belief that socialism works, even in a poor country.
Clearly their view is skewed. Next-door neighbor Cuba has been a socialist, closed economy for decades. The largest island in the Caribbean has been stuck in the past since the 1950s.
Democratic Socialists: Meet Nicolas Maduro
Maduro’s mea culpa on his country’s economic demise comes at a time when many new Democrats in the U.S. are advocating for socialist policies, such as expanding Medicare insurance and free public college tuition. The problem is funding these programs for such a massive population.
While everyone argues that taxing the rich and wealthy corporations is the solution, they forget that the rich will simply hide their wealth offshore to avoid taxation. And large corporations will simply relocate their corporate headquarters to low corporate income tax jurisdictions, keeping nothing but research and development here at home. Apple did this in Ireland—case in point.
Strong economies, helped along by low taxes, bring in more money to the government. High taxes encourage tax fraud and reallocation of resources to low-tax jurisdictions and—in a global economy—offshore to other countries.
Wealthy social democratic countries, such as those in Scandinavia, tend to be smaller than Venezuela. Sweden has around 10 million inhabitants. Norway has even less. Venezuela has around 30 million people living within her borders.
Corruption and political willpower are a perennial problem in Latin America. High taxation to fund social programs is more likely than not to line the pockets of the government.
Meanwhile, In The Failed State Of Venezuela …
Power blackouts are a daily occurrence in parts of Venezuela today despite PSUV’s redistributionist policies designed to help the poor. Help them with what, exactly? Surely not help them keep the lights on. Or pay for medicine. Or food. Or a bus ride to work.
Running water is scarce in some towns. ATMs are empty in some towns, too. Public transportation in smaller cities outside of the government hub of Caracas is unreliable.
AFP reporter Alex Vazquez visited one such city recently, San Juan de los Morros, and talked with the locals. He said it has become a city where “nothing works.”
“They send (running) water once a month. The rest of the time we have to buy it,” Vazquez quoted a woman named Florimar Nieves, a school teacher, as saying in a story that ran on the AFP wire yesterday. “There have been times where we’ve had no electricity for 24 hours.”
Meanwhile, Democratic socialists here say that the only reason socialism hasn’t worked is that no one is doing it right.
Maybe it works in small, rich, homogenous societies like Norway. Like Venezuela, they too have a lot of oil. But their income and capital gains taxes are lower (flat tax of 25%). Norway has also been reducing their corporate tax rate, down from 50% in the 1980s to around 24% today. Norway is also an open market economy.
By comparison, Venezuela is a generally closed economy taxing nasty, evil corporations (and even nice ones) at a whopping 34%. They could tax them at 80% if they wanted and give everyone free health care and free college and free busses to work.
But before long, and if this crisis keeps up, the only company Venezuela will have left is its state-owned oil firm Pdvsa and a few mom-and-pop businesses selling food to the poor—who need President Maduro more than ever to help them pay for it.
