Protester facing the Venezuelan National Guard during a protest in May 2017. Source: Wikimedia commons. Some rights reserved
Recent footage from Venezuela reveals an increasingly desperate situation. In videos posted online, people can be seen chasing livestock through the fields to butcher it for its meat, while others resort to eating dogs and cats on the streets of Caracas.
Despite all of this, Maduro and his defenders on the left have basically turned a blind eye to this situation. They claim the mainstream reports are exaggerated, and that the situation is the result of a US-led “economic war” intended to sabotage the Maduro government.
Others admit Maduro deserves some of the blame, but claim he has been limited by low oil prices and sabotage from the right-wing opposition. Supporting the Maduro government as a bulwark against imperialism and neoliberalism is still the best option, they assure.
However, while it is true that Washington and its local allies have long sought to overthrow the Venezuelan government, a closer look at the current crisis shows a supposed “economic war” has very little to do with it. Nor does it have much to do with low oil prices.
The primary cause of growing hunger and desperation in Venezuela today are the government’s very own policies, which are under control of President Maduro himself.
In fact, the primary cause of growing hunger and desperation in Venezuela today are the government’s very own policies, which are under control of President Maduro himself, and could easily be rectified if he so desired.
But the policies remain in place, and the reason is that government insiders are benefiting enormously from them. As ordinary Venezuelans scramble to survive, Maduro and his friends are lining their pockets with oil dollars.
Instead of coming to their defense, and minimizing the scale of the disaster, the left should seek to understand how it got to this point, and how it might have been avoided.
“A gang of thieves”
At the crux of Venezuela’s crisis is the currency control system, which began under Hugo Chavez as a way to restrict access to foreign exchange and ensure enough dollars to import priority goods.
Like previous attempts at fixed exchange rates, there was some corruption and abuse of this system. But it wasn’t until Maduro came to power in 2013 that things really started falling apart.
“A gang was created that was only interested in getting their hands on the oil revenue,” says Hector Navarro, former Chavista minister and socialist party leader.
“They are thieves with no ideology,” he added.
Chavez’s former finance minister, Jorge Giordani, has said the same thing, estimating that some $300 billion have been embezzled in this way. Navarro and Giordani were long time members of Chavez’s inner circle and mainstays of his cabinet until they became critical of Maduro in 2014 and were sacked.
Chavez’s former finance minister, Jorge Giordani, has said the same thing, estimating that some $300 billion have been embezzled in this way.
Longtime Chavista insider Mario Silva also warned about this back in 2013, claiming that a group of officials headed by then Vice President Diosdado Cabello were gaining the upper hand inside the government, and were “bleeding” the country of its dollar reserves.
This made Giordani’s dismissal in 2014 especially noteworthy, as he was the primary person in charge of keeping the currency regime in check, making periodic adjustments to avoid major distortions. Once Giordani was out of the way, the currency was allowed to get increasingly overvalued, greatly benefitting the “gang of thieves” and their foreign exchange schemes.
Venezuela’s currency became increasingly overvalued starting in 2013. Data from dolartoday.com
The basic scheme goes like this: those who can get access to foreign exchange at the official rate set by the government then simply turn around and sell those dollars on the black market, or deposit them in bank accounts abroad. The greater the distance between the black-market rate and the official rate, the more profitable the scheme becomes.
Since 2013, Maduro has refused to make any significant adjustments to the exchange rate, allowing rampant inflation to continually erode the real value of the currency. The going rate for dollars on the street is now thousands of times higher than the official rate, creating huge incentives for illicit activities.
The going rate for dollars on the street is now thousands of times higher than the official rate, creating huge incentives for illicit activities.
As a result, hundreds of millions of dollars have disappeared in goods that are never imported, infrastructure that is never completed, and briefcase companies that don’t exist.
Instead of using the oil dollars to pay for basic needs, government officials and their associates simply abscond with them, leaving ordinary Venezuelans to deal with the consequences.
Numerous examples have come to light in recent months, the common denominator being that those involved usually have close ties to the Maduro government—a necessary ingredient for acquiring dollars at the official rate.
President Maduro and his vice president El Aissami have also gotten in on the fun. According to the former attorney general, a company owned by El Aissami was granted $120 million to import food from Mexico, while another $340 million went to a company with ties to Maduro.
All in all, the two companies received nearly half a billion dollars at a rate of exchange that was only one percent of the real value of the dollar at the time. This is why Maduro and gang aren’t interested in fixing the distorted currency—it allows them to funnel massive amounts of oil dollars into their own pockets.
Squeezing the poor
With so much of state revenue being misappropriated through the currency system, or sent abroad in the form of debt payments, there is little money left over for the needs of ordinary Venezuelans. But instead of fixing the currency, or defaulting on the debt, the solution for Maduro has been to impose austerity on the country.
Since 2012, imports have been cut by over 65 percent, even amidst widespread shortages.Since 2012, imports have been cut by over 65 percent, even amidst widespread shortages. Social spending has also been cut drastically, with total expenditure reaching a lower percent of GDP than the neoliberal years of the 1990s.
The results of these cuts have been very predictable, causing a collapsing health system, severe shortages of food and medicine, skyrocketing infant and maternal mortality, and thousands of preventable deaths.
Wages have also been slashed by more than 90 percent since 2013, as runaway inflation has been met with inadequate wage hikes from Maduro. The national minimum wage has gone from about $300 in 2012 to less than $5 in 2018, leaving nearly half of the Venezuelan population scrambling to get by on just $5 per month!
Venezuela’s national minimum wage has collapsed since late 2012. Data from dolartoday.comAs might be expected, this has caused growing hunger and malnutrition. Hundreds of thousands of Venezuelans now flood into neighboring countries in search of basic necessities, while others attempt the risky and often deadly trip by boat to nearby islands.
Meanwhile, workers are leaving their jobs en masse as their salaries have become worthless. Major sectors of the economy are now critically understaffed, only worsening what is by far the worst economic crisis in Venezuelan history.
A litany of excuses
Maduro and his defenders point to a number of factors to deflect blame for this situation—from the “economic war,” to low oil prices, to US sanctions. But none of these excuses holds much water.
The capitalists and food traffickers accused of “economic war” are actually just following the incentives set up by government policies, and are often well-connected insiders themselves. Some of the worst food traffickers have been shown to be people inside the military.
Meanwhile, it is the government alone that controls the exchange rate and the allocation of oil dollars, making this a fairly easy problem to solve. But despite constant calls to fix it, Maduro has insisted on maintaining the currency system, and has continued to hand over the oil dollars to those who squander them.
As for falling oil prices, they only exacerbated what Maduro’s policies were already causing. By the time oil prices fell in late 2014, the economy had already been contracting for three straight quarters, wages had already dropped 80 percent, and imports had been cut by 25 percent.
The growing inflation, food shortages, and currency distortions at the root of the crisis all began in late 2012, two years before oil prices had fallen.
The same goes for US sanctions, which had a negligible impact until Trump imposed broader sanctions last year. By that time, Venezuela’s economy had been in a free fall for four straight years.
In other words, it makes little sense to try to point the finger at things that did not occur until after the crisis was well underway. The truth of the matter is that Maduro’s own policies have destroyed Venezuela’s economy far more than Washington or the opposition could have ever dreamed possible.
Lessons for the left
Venezuela’s collapse has a number of important lessons for the left, but in order to grasp them, we must take an honest look at what went wrong. While Maduro is clearly to blame for the current disaster, Chavez’s economic policies also contributed in important ways.
Chavez’s approach to the economy generally involved taking over strategic sectors, with the notion that underinvestment by the private sector could be remedied by state control. Firms were often expropriated on a whim, and state-owned endeavors were launched without careful thought or planning.
This led to a bloated bureaucracy, growing corruption, and a long-term decline in key sectors. State-owned enterprises often ended up in the hands of corrupt bureaucrats who made them into their own domains, and then milked them dry.
A key example of this was in 2010, when Chavez launched an offensive in agriculture by expropriating hundreds of farms and food industries. Given that these enterprises were often undercapitalized and unproductive, state intervention was necessary.
Food production declined sharply after government takeovers in 2010. Data from Fedeagro.orgThe lesson here is that state takeovers of major sectors of the economy are not necessarily a good idea in poor countries with weak institutions.
These types of interventions must take into account the capacity of the state to administer enterprises without running them into the ground, especially in sectors so crucial to the national economy.
One alternative might have been to turn control over to the workers, and, in fact, there was a proliferation of community and workers’ organizations under Chavez.
But the government did not do this in most cases, and here lies another important lesson for the left.
The lesson here is that state takeovers of major sectors of the economy are not necessarily a good idea in poor countries with weak institutions.
While increasing worker power and control over production should be a goal of any socialist project, to be successful, workers and social movements must build organizational power that is independent from political parties and the state.
In Venezuela, the communal movement was very much a state-sponsored initiative, with local communities following directives on how to organize from above. The extent of their power and control over production was decided by the government, not workers.
Nowadays, the communes are used as mechanisms of patronage and control rather than vehicles of liberation. Members get certain perks and benefits from the government, but come election time they are forced to vote for government candidates to avoid losing those benefits.
Finally, there is an important lesson on the question of liberal democracy. Though Chavez was justified in his criticisms the exclusionary kind of democracy that existed in the country before 1998, in attempting to reform this system, he ended up creating something even worse.
Although a new constitution, greater participatory democracy, and transparent electoral system were all major accomplishments, at the same time, virtually all organs of the state were being stacked with party loyalists, and yes-men that were valued more for their obedience than their competence.
The promising new institutions created by the constitution slowly became little more than rubber stamps for orders coming out of the executive. When Chavez died and Maduro’s “gang of thieves” gained the upper hand inside the government, there were no longer any checks on their power.
The lack of independent institutions allowed them to force out internal opponents, neutralize the congress, hold fraudulent elections, and form an all-powerful body that now runs the country as they please.
Instead of making liberal democracy more democratic, the Maduro regime now deports journalists, jails union leaders, detains activists, murders whistleblowers, and tear gasses the poor and hungry. What was once an infallible electoral systems has now been stripped of all the guarantees that ensured fair elections, allowing Maduro and gang to bend everything in their favor.
All of this should serve as an important lesson for the left—that despite the major limitations of liberal democracy, having some checks and balances is better than having none.
Had Chavez allowed room for independent institutions, and permitted checks on the power of the presidency, Venezuela might not be in the mess it is today.
As the country heads into another very questionable election, the left should not give its support to the corrupt and authoritarian Maduro regime, nor should it support the US-aligned right-wing opposition.
Our support and solidarity should instead be with the Venezuelan people, and their right to democratically decide their fate. That is the only possible solution to the crisis.