Economics, Not Sanctions, Is To Blame For Venezuela’s Misery

In terms of their reception by Western intellectuals, socialist experiments usually go through three distinct stages.

Q4 hedge fund letters, conference, scoops etc


DavidRockDesign / Pixabay

Three Stages of Socialism

The first stage is the honeymoon period, the period during which the experiment shows some initial successes, and Western intellectuals wax lyrical about it. The second stage is the excuses-and-whataboutery period, during which… well, the clue is in the name. At some point, the system’s failures are so obvious, and so widely known, that it becomes an embarrassment to the socialist cause. This is when it enters the third, and final, stage: the not-real-socialism stage. Western intellectuals now claim that the country in question was never socialist and that only a complete ignoramus, who has no clue what “socialism” even means, would claim otherwise.

That is the pattern I describe in my forthcoming book Socialism: The Failed Idea That Never Dies. It is also a pattern that, so far at least, the left in the West has followed to a tee on Venezuela. The chronology is as follows:

  • 2005-13: the honeymoon period
  • 2013-15: the excuses-and-whataboutery period
  • 2015-17: a gap between two periods, characterized by awkward silence
  • 2017-present: the not-real-socialism period

Over the past few days, however, Venezuela seems to have temporarily slipped back to the second stage. At least on social media, the consensus seems to be that Venezuela’s economy would be a roaring success were it not for outside interference by hostile capitalist powers.

Shifting Blame

Dr. Aaron Bastani, author of Fully Automated Luxury Communism, claimed that “Primarily because of sanctions Venezuela’s economy has shrunk by 50 percent in the last five years.

Within a couple of minutes, these sanctions must have intensified again, because Dr. Bastani then upgraded their relative importance from “primarily” to “entirely”: “The fall in GDP (on this historic scale) is entirely because of sanctions, yes.

An open letter in The Guardian, signed by John McDonnell, Diane Abbott, Richard Burgon, Laura Pidcock, Clive Lewis, Dennis Skinner and Chris Williamson, Owen Jones, Ken Livingstone and others, talked about a “US attempt at regime change,” which it linked to “the far-right governments of Trump and Bolsonaro.” One could gain the impression that there was no domestic opposition to Maduro whatsoever.

A similar, more explicit letter published on Portside, signed by Noam Chomsky, Mark Weisbrot, and 68 other American academics, claimed that “the US and its allies, including… Brazil’s far-right president, Jair Bolsonaro, have pushed Venezuela to the precipice.” The letter places the bulk of the blame for Venezuela’s multiple crises on the doorstep of the US, especially on, again, sanctions.

Most of the names underneath those two letters are familiar: Until Venezuelan socialism fell out of fashion a few years ago, these are the people who used to be Chavez’s and Maduro’s most reliable Western cheerleaders. They are now rekindling an old flame. Old love does not rust, it seems.

But what exactly are those “sanctions” that our relapse-Chavistas are getting so agitated about?

The Truth About the Sanctions

Insofar as they exist at all, sanctions on Venezuela are a very recent phenomenon. Until mid-2017, there were no economic sanctions against Venezuela at all. There were only personalized sanctions (asset freezes and travel bans), which targeted a handful of senior Venezuelan officials. Sanctions of that type can only affect the targeted individuals themselves. They could not possibly have an effect on the wider Venezuelan economy.

It was only in August 2017 that the US government brought in a measure one could reasonably describe as an economic sanction: They banned the purchase of Venezuelan government bonds, as well as bonds issued by Venezuela’s state-owned oil company. A year later, this was extended to other entities owned and/or controlled by the Venezuelan government.

There are, however, no restrictions on trade (or at least none from the US side). If you are an American citizen and/or the owner of a US-based company, you can trade with Venezuela as much as you like. You can sell them food, medicines, sanitary products, tools, electronics, machinery, or whatever takes your fancy. The only thing you cannot buy is a (quasi-)government bond.

Even this is not an absolute ban (there are exemptions), and obviously, it can apply only to US citizens and companies. If you are, for example, British, German, Canadian, Japanese, or French, you can buy Venezuelan bonds to your heart’s content (although for some unfathomable reason, neither British nor German nor Canadian nor Japanese nor French investors are showing a massive appetite for Venezuelan bonds right now).

More to the point, though, Venezuela’s economic crisis started years before those very minor sanctions were even discussed. The economy already contracted in 2009 and 2010, which prompted then-president Hugo Chavez to declare an “economic war” against the “fatherland-less bourgeoisie,” who he accused of “destabilizing” the country. The Venezuelan economy then briefly seemed to bounce back again but fell off a cliff in 2013-14, and it has been in freefall ever since. By the time the US sanctions were brought in, it had already shrunk by a third.

For the record: I’m an opponent of economic sanctions. I’m not defending them. I’m simply saying that sanctions that are so limited in scope cannot cause an economic crisis on anything like that scale and that even if they could, they could not do so with retroactive effect. We can date the starting point of the current crisis back to, at the very least, 2014, and one can make a good case for dating it back to 2009. And this is if we stick to the macroeconomic picture. Shortages of basic essentials were already becoming an issue in 2003. In what possible universe can minor sanctions introduced in 2017 retroactively cause all those problems?

Venezuela’s crisis is entirely of its own making. Chavez and Maduro created severe shortages by imposing price controls and exchange rate controls. They have scared away international and domestic investors by randomly confiscating private property and riding roughshod over the rule of law. They have bankrupted their country through reckless fiscal policies, and they have destroyed its currency through reckless monetary policies. The current crisis is their fault and their fault alone.

And the eagerness of their Western cheerleaders to point the finger elsewhere just shows how utterly those people have failed to learn any lessons whatsoever from their long flirtation with disaster socialism.

This article was reprinted with permission from CapX.

Kristian Niemietz

Dr. Kristian Niemietz is the Institute for Economic Affairs’ Head of Health and Welfare.

This article was originally published on Read the original article.

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