Episode 35: Repeating History in Venezuela

Audio Link 

Welcome to Stories of Communism, the podcast where we discuss what life is really like for those unfortunate enough to live under communist or socialist governments.    Recording from the suburbs of Portland, Oregon, this is Erik Seligman, your co-host, along with Manuel Castaneda.

After the last episode’s impassioned personal stories by two Venezuelans who had been forced to abandon their country, I attempted a search for memoirs or novels published by other Venezuelans who had lived through their country’s economic collapse.   Due to the events being so recent, it was difficult to find such works.   But I did find an entertaining account by an American journalist named Raul Gallegos called “Crude Nation:  How Oil Riches Ruined Venezuela”.   It was published in 2016, and in addition to talking about a bit of the history, talks about Gallegos’s experiences in Venezuela during the preceding decade, spending time among the normal people as well as government officials.

As you might guess from the title, one of Gallegos’s key points is that despite having been among the richest nations in the Western hemisphere for a time, there was a constant inherent weakness to Venezuela’s economy:  the over-dependence on oil wealth.    This led to a lack of diversification in their industries, an over-dependence on foreign imports, and a foolish tendency to elect governments that would spend money indiscriminately.   Perhaps to increase the chance of the book being accepted by American leftists, he avoids using the word “socialism” too much, and phrases his conclusion like this:  “Venezuela’s reality is a tale of how hubris, oil dependence, spendthrift ways, and economic ignorance can drive a country to ruin.”     But really, once you start talking about “spendthrift ways and economic ignorance”, it’s hard to avoid relating that to socialist policies.    

Venezuela’s modern problems began in the 1990s, when Venezuela seemed to have an endless supply of oil wealth.    Hugo Chavez was elected president on a platform of spending the country’s riches to help the poor, and fundamentally transforming the country in the name of social justice.    Naturally, he also demonized the “savage capitalists” who managed private companies, and promised the government would fix that problem too.   He started out by enacting policies like price controls on consumer goods, to make them more accessible, and outlawed corporate layoffs.    As Gallegos writes,

Voters elect politicians who promise economic miracles and hand out as much money as possible. This is the people’s money, after all. …  Under Chávez’s movement the government has lavished billions of dollars on fighter jets, helicopters, and advanced military technology for armed forces that have never fought a war. Politicians spend untold sums on social programs but fail to invest enough to keep pumping oil, the original source of the country’s fantastic riches. Chávez, convinced the state could run companies better than they were already being managed, nationalized dozens of them in every industry but turned them into corporate zombies instead. The companies operate, employ thousands of workers, and are seemingly alive. But they produce little, lose gobs of money, and survive because the government props them up.

[Gallegos, Raúl. Crude Nation: How Oil Riches Ruined Venezuela . Potomac Books. Kindle Edition.   Loc 319]

One confusing aspect of spending time in Venezuela is the varying exchange rates of the currency.    There is a small elite, mostly people working with the government or with powerful political connections, who are paid in foreign dollars and can exchange money at a rate of 6.3 bolivars to the dollar.    However, the unlimited printing of money by the government has continually driven down the bolivar’s real value.    Common people are charged much more— and due to government controls on how much currency each person can exchange, mostly had to use the black market to buy anything significant.

As I edit this text in March 2016, the black market dollar stands at nearly 1,200 bolivars per dollar, a 5,600 percent increase in roughly a year. The truth is, I cannot write fast enough to keep up with the bolivar’s loss of value. In this country, those who earn dollars can live like royalty, and those who don’t do whatever they can to get their hands on them…

Under normal circumstances a weaker currency shouldn’t hurt people too much, but in Venezuela where almost everything people consume comes from abroad, especially from the United States, a weaker bolivar means virtually everything a family might need or want, from food to clothes, television sets, fridges, washers, and cellular phones, can become more expensive in just days.

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Angry government officials accused currency traders of sabotaging the economy.    Naturally, the leaders of Venezuela decided that a government-based solution was the key to solving this problem, as with all problems.    The government expanded its takeovers of private companies, and became a leading importer of food, medicine, and related items— but then small groups of well-connected con artists and corrupt officials started creating sham companies to launder this spending for themselves.

Jorge Giordani, a seventy-six-year-old electronics engineer and the main architect of Venezuela’s economic policies under Chávez—known as “the Monk” for his ascetic ways and almost religious devotion to orthodox leftist ideas—famously admitted that US$20 billion, or one-third of the country’s total import bill, was lost to obscure enterprises in 2012 alone.  Seen another way, corrupt foreign currency dealings took US$658 from the pocket of every Venezuelan that year.

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Gallegos’s journalistic work led to a personal clash with “The Monk”, after he asked a question during a press conference, about whether giving the president too much control over the central bank and allowing it to freely create money might lead to overspending and government abuses.   

The Monk’s response was an angry forty-minute rant during which he accused me of showing a “lack of respect” for central bank board members and President Chávez. “The reserves belong to the nation, not the bank,” he said. “What discretion are we talking about?” The president, as the people’s elected representative, he insisted, had every right to decide how to spend that money. … Other reporters in the audience seemed stunned. 

Later that night a friend called to inform me that I was being called an enemy of the revolution on a well-known government propaganda television program. A nationally televised show called La Hojilla (“the Razorblade”), known for attacking the government’s perceived enemies, replayed the incident and accused my employer, Dow Jones and Company, and me of manipulating information. The Monk and the government’s media apparatus had made an example of me for the entire country, especially those who questioned the government’s economic policies. Debating the idea of turning the bank into the president’s petty cash fund would not be tolerated.

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By 2015, Venezuela was suffering a dire shortage of consumer goods.   Price controls led to inefficiency and inability to produce in many areas:  prices were often so low that companies could not recover the cost of supplies, and couldn’t attempt to cut costs by laying off employees.

I made it my goal in January 2015 to buy a household roll of toilet paper somewhere, anywhere in the Caracas metropolitan area within three weeks. … It had been roughly two years since store shelves were regularly stocked with toilet paper rolls in Caracas, the city in Venezuela where consumers were most likely to find scarce products. Other major cities and towns in this oil-rich nation were worse off: their store shelves were barren almost all the time. People traveled to Caracas from all over the country hoping to find body soap, laundry detergent, and toilet tissue somewhere in the capital.  When delivery trucks carrying toilet paper drove into stores, dozens or even hundreds of Venezuelans already stood in lines that were blocks long, waiting for hours…

Odd things happen when toilet tissue disappears. At the Nugantina café, a fixture in the Los Palos Grandes neighborhood in eastern Caracas, a stack of brown paper towels normally used to dry hands sat atop the toilet in the unisex bathroom. There was no toilet tissue available for customers… A Renaissance manager told me the hotel took the precaution of keeping a three-month stock of toilet tissue. “It’s all about having the right suppliers. And having lots of them,” the manager said. The hotel devoted one whole floor of the building exclusively to storing its inventory of prized toiletries.

Shopping for toilet paper, or anything else in Venezuela, became a fraught experience. Visiting more than a dozen supermarkets and pharmacies in Caracas over several days left me with nothing. People stood in one line or another outside supermarkets at all hours of the day….

On a Saturday, at the state-owned Bicentenario supermarket in Plaza Venezuela, a middle-class enclave, people showed up in droves to shop…  Outside, several hundred people lined up in a dirt field under the sun, holding umbrellas and sitting on folding chairs, to wait for a chance to enter the building. Entire families of mostly low-income Venezuelans showed up with children of all ages to sit in the heat. A handful of portable toilets were strategically placed on the edges of the field for those who needed to relieve themselves, a woefully inadequate number given the growing mass of people in line. Of course shoppers were expected to bring their own toilet tissue if they planned to use the toilets.

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And of course, the government discovered the alleged real root cause of the toilet paper shortage:  an orchestrated campaign of right-wing sabotage.    When this pronouncement was received with skepticism, another government official pointed to the shortage as a sign of prosperity:  if people needed toilet paper, it must mean they were eating well, due to the success of the socialist government in bringing them food.   But the government continued to blame sabotage as well, attempting to crack down on the hoarders who supposedly were keeping the products off the market.   If a store was found to be holding back stock of this or any other price-controlled good, its owners could find themselves in prison for 8-10 years. 

As you would expect, this uncertainty about if and when any particular product would be available also leads to the perverse incentive to buy more than you need, whenever you can find it.   

To witness the Venezuelan tendency to stock up on goods I met Ramón Barrios, a sixty-eight-year-old retired policeman, who lives in a spartan home on a slope in the low-income barrio La Pastora. Barrios developed the habit of leaving his home with a folded plastic bag in his back pocket to carry the products he could find in the streets. “If there are people lining up somewhere I will get in line and buy whatever is for sale,” if no ID number is required, Barrios told me. … He opened his old wooden cupboards and allowed me to take out whatever I could find. Several minutes later, I had managed to dig out at least twenty-two pounds of white rice bags, another twenty pounds or so of sugar, roughly ten pounds of black beans, at least a dozen packs of pasta, fifteen pounds of corn flour, bottles of cooking oil, ketchup, mayonnaise: goods that were almost impossible to find and buy in large quantities anywhere. And far more than a retired man living alone would need.

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To gain some insight into the still-fanatic core supporters of the Venezuelan leadership, Gallegos also spent some time with a colorful local leader nicknamed “Che”, who modeled his life after Cuba’s Che Guevara.   Apparently he wasn’t a listener of this podcast, since as you may recall, we have discussed how Cuba’s Che was actually an incompetent but bloodthirsty fraud, whose only actual successes were in the public relations arena.    Anyway, this Che was the leader of a local armed Marxist group that controlled his neighborhood, ensuring votes for Chavez and Maduro.   

“We’re in an economic war,” Che said, referring to food scarcity. “And when you’re at war, you bring out the military. Take the companies, militarize the economy!” Che didn’t finish high school, but claims to read Marx and other thinkers on which he bases a mélange of ideas similar to the ideological mix Chavismo calls Twenty-First-Century Socialism. … “We don’t threaten people to get what we need,” he said of his Colectivo friends. “Some [armed] groups do it, but we don’t….  He told me he doesn’t use toilet paper and has some handy only for visitors.

Che claims he has never benefited from government largess, but like many Venezuelans in the D and E segment, those closest to him have gained from social programs…  [his girlfriend’s] mother managed to get a two-bedroom apartment assigned to her by the government even though she is a retiree living by herself (government apartments are usually assigned to families). Che assured me he did nothing to help her get a new home but admitted that she did mention to housing officials that he was practically her son-in-law and “that may have helped.”

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But this government generosity isn’t quite what you might expect, once you look closely at the details.    Government-contracted construction companies suffer from the same waste and inefficiency created across the economy.  Gallegos describes the apartment:

The apartment complex was roughly two years old but looked much older. Its facade had cracks in various places, and the paint was peeling. The lobby of the building had dirty concrete floors and an abandoned commercial space, with broken ceiling tiles, trash, and a small mountain of loose gravel on the floor, that no business had found fit to lease. The whole building looked like it was unfinished when residents moved in…  the building’s elevator doesn’t work, so residents have to trek up and down the stairs every day, which is a pain for those who live on the top floors.  …I noticed the bathroom and the shower had no tile, the walls were cracked, and a hole in the floor to the left of the toilet—crudely covered with a piece of cardboard and tape—emitted a foul odor. Rosa and her neighbors later informed me the sewer pipes in the building often got clogged and this caused bad smells in people’s bathrooms. 

[Loc 3603]

Gallegos also spent some time talking in depth with managers and employees at various struggling Venezuelan companies, learning how constant and often contradictory mandates from the state make it impossible to produce goods efficiently.    Perhaps the most notorious is the case of the oil companies, which under the Chavez and Maduro governments have become money-losing enterprises despite Venezuela’s massive oil reserves.   

State-owned giant PDVSA, which controls the country’s vast oil empire, has become as unusual as the country’s own economy: it controls the richest accumulation of oil in the world but doesn’t have enough cash to pay its bills.  The company has earned more than US$100 billion from oil sales annually in recent years and has sold every barrel of crude for at least twice what it cost to produce it, which means the company typically mints money every time it pumps a barrel of oil. Yet PDVSA takes months, even years to pay its suppliers and has accumulated billions of dollars of unpaid bills to the point that now its own contractors lend money to the troubled company…

…PDVSA has consistently spent more money on social programs during the five years ending in early 2015 than it did on operating and oil exploration costs combined, and on the equipment it needs to increase oil output over time, the main reason for the company’s existence in the first place.

…PDVSA produces lumber, roof tiles, and cinder blocks to build the homes the government gives the poor almost for free. And unlike the business of pumping crude, the company loses money on these activities. Keeping those loss-making businesses going, however, provides jobs to thousands of workers and Chavismo’s political supporters.

Since Chávez fired more than nineteen thousand PDVSA oil workers and executives after the 2002 strike, his administration and his successor’s favored hiring politically loyal people over those with technical expertise. …And its new slogan, “PDVSA now belongs to everyone,” became a Chavista rallying cry.

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<closing conversation with Manuel>

Amusingly, American leftists seem to have held out as long as they could before admitting that there really was something wrong with Venezuela.   Gallegos had trouble getting his book published in 2016, because major publishers insisted that Venezuela’s problems were only temporary, and that things would “return to normal” soon and readers would lose interest.   I think history has pronounced its verdict on that idea.     Be sure to check out his book, linked in the show notes at storiesofcommunism.com, if you want to learn more about the decline of this once-rich nation under socialism.

And this has been your story of Communism for today.