Economic Transformation

Lesson for SA from Venezuela’s failed RET

Empty shelves of Venezuela
Empty-Shelves-750x400.jpg

The former Venezuelan president’s good intentions with radical economic transformation (RET) to improve the lot for his country’s people failed, for ignoring basic economic principles. South Africa would be wise to take notice.

Until the arrival of Hugo Chavez on the scene, Venezuela was best known for having the highest waterfall in the word and the most Miss World winners in history.

As a left-leaning army officer, Chavez attempted a coup in 1992 to eradicate rampant corruption plaguing this oil rich South American Country’s political system.

The coup failed, Chavez was imprisoned, but soon released in an effort to placate public discontent.

In 1998 Chavez ran for president. With the corrupt political system in disfavour and an economy in crisis, his populist message of returning power to the people, brought him victory.

As architect of the “Bolivarian Revolution,” Venezuela’s version of RET, Chavez soon became a household name and the poster boy of populism all over the world.

The Bolivarian Revolution

Named after the 19th-century Venezuelan and Latin American revolutionary, Simón Bolívar, who brought independence to most of the northern parts of South America, Chavez’s “Bolivarian Revolution,” sought to build a mass movement for popular democracy, economic independence, equitable distribution of revenues, and an end to political corruption in Venezuela.

His populist policies, bankrolled by Venezuela’s immense oil wealth, initially boosted the economy, allowing increased social spending significantly reducing economic inequality, poverty and illiteracy.

South African connection

It is no surprise that Chavez’s populist policies and confrontational public oratory found resonance in populist circles in South Africa, particularly with then ANC Youth League leader, Julius Malelma.

Malema led an enthusiastic 2010 ANCYL delegation on a “study tour” to Venezuela to meet with, and learn from Chavez how to create a utopia.

Paying homage to Chavez after his death in March 2013, Malema observed: “Despite massive resistance from rented imperialist puppets, President Hugo Chavez was able to lead Venezuela into an era where the wealth of Venezuela, particularly oil, was returned to the ownership of the people as a whole.”

The SA Young Communist League was even more glowing in their praises, their spokesman Khaya Xaba saying: “Comrade Chavez was an inspiration to all progressive forces around the world.... “and while capitalists sneered at socialism, and major imperial forces disrupted it, Chavez had shown how socialism could benefit all.

Few Venezuelans would today agree with such sentiments amidst reports of angry mobs pulling down statues of Chavez across the country.

Failure

Initially Chavez made spectacular progress in social development in areas such as health, education, and poverty eradication – the radical transformation Chavez promised, was being realised and the result was impressive on the back of oil revenue.

But, as oil prices dropped, the sustainability of the “Bolivarian Revolution” came under strain, and it slowed-down ambitious RET plans, with disastrous consequences.

The reasons for the collapse of the “Bolivarian Revolution,” or Venezuela’s RET, are many and varied. The main reason, however, was Chavez overlooking or ignoring basic economics imperatives.

Repeating the mistake of other oil producing countries, he over relied on the oil industry for bankrolling populist promises. When the oil price started falling in 2014, the party in Venezuela was, quite literally, over.

Many observers believe that under Chavez, Venezuela suffered "one of the worst cases of Dutch Disease in the world."

As the “Bolivarian Revolution” floundered, poverty, inflation and corruption returned, and like many populists before, he turned dictatorial, adopting oppressive and draconian measures to save his “revolution.”

For Chavez and his supporters, the fight to save the “Bolivarian Revolution” became a zero-sum game – it was all or nothing – and if you are not for me you are against me.

A fine example of the devastating effect of this approach, is what happened to the state-run oil firm, Petróleos de Venezuela, or PDVSA.

After a strike at PDVSA, which threatened to destroy Chavez’s presidency, he fired 18,000 workers, many of them skilled technicians and managers, replacing them with some 100,000 supporters.

Much of PDVSA’s operating budget was diverted into programs supportive of the “revolution,” payoffs for government cronies, and subsidies to keep promise of affordable food.

When Chavez died in 2013 the “Bolivian Revolution” was in tatters, and Venezuela was hovering on the brink of total collapse.

Rot continuous

Under his successor, Nicolás Maduro, the rot continued and accelerated.

 Maduro, far less charismatic that Chavez, was elected president in 2013 with a razor-thin margin, but instead of remedial solutions he opted to continue with Chavez’s revolutionary road map.

The result, the economy, once Latin America’s richest, is estimated to have shrunk by 105% in 2016, more than Syria’s, and inflation has been estimated as high as 720%, nearly double that of South Sudan, rendering its currency nearly worthless.

Venezuela continues to experience a shortage in basic commodities such as milk, flour, coffee, baby food, even toilet paper, and the list keeps growing. The worst shortage is in medicine and medical equipment. To be sick in Venezuela right now is a death sentence.

 Like their RET counterparts in Zimbabwe, Venezuelans cross the border to neighbouring Colombia to buy basic goods.

In response, Maduro blame "bourgeois criminals" hoarding goods. And, in a tone familiar to South Africans, he refuses to accept any responsibility, blaming the opposition of plotting a coup against him with the support of “foreign forces.”

The crisis in the country, according to Maduro, is a capitalist conspiracy.

In a futile attempts to address problems, Maduro uses his executive power to issue decrees to try and stem the haemorrhage.

In 2016 for example, he declared a state of economic emergency, forcing people to work in agricultural fields and on farms for 60-day (or longer) periods, to supply food to the country. Meanwhile, three meals a day, have become a luxury many can no longer afford.

Electricity shortages and rolling blackouts has become a normal, forcing Maduro to announce a two-day work week. 

Against this backdrop, law and order broke down, and corruption is again rampant. 

In 2015 Venezuela was considered the most murderous place on earth, someone murdered every 21 minutes, and violent crimes are so prevalent, government no longer produces crime data.

Soldiers and irregular armed groups known as ”colectivos” (vigilantes, including criminals) have been deployed, not only to try keep law and order, but to control rioting protests and frequent anti-government marches organised by civil society organisations, to patrol shops, to police pricing of goods and enforce a law passed to limit profit margins.

This, is the horror story of a good idea with merit that went horribly wrong, because the basics of sound economic principles was ignored.

Lessons

South Africa, as every sensible person knows, demands drastic socio-economic transformation in a short space of time – that is to avoid a bloody revolution. But, if South Africa neglect to care about sober economics whilst seeking meaningful transformation, the consequences will be equally devastating.

Venezuela’s failure serves as a warning to South Africa not to repeat the same mistakes.  

by Garth Cilliers

Follow us on Twitter | Like us on Facebook
M1
comments powered by Disqus

Subscribe to the newsletter



Final Word

Final Word

IntelligenceBul Final Word Confusing world of sluts, gays and lesbians https://t.co/qCz4oEd22o 10 months - reply - retweet - favorite

IntelligenceBul Let's Think Will Zuma admit that he is a “shady man”? https://t.co/sKBi6kL5lf 10 months - reply - retweet - favorite

IntelligenceBul Propery & Wealth Home-grown financial solution for a truly South African dilemma https://t.co/1XFQO45fNJ 10 months - reply - retweet - favorite