Venezuela a Cautionary Tale About Socialism’s Limits

(The Philadelphia Inquirer/TNS) -

It’s debatable whether it was Einstein, Ben Franklin, Mark Twain or none of them who said that the definition of insanity is doing the same thing over and over again and expecting a different outcome. What isn’t debatable is the validity of the statement. Individuals, institutions and countries should learn from past mistakes, but they don’t.

Take Venezuela. When Hugo Chavez, the self-styled democratic socialist, was elected president of Venezuela in 1999, the country was wealthy, possessing immense proven oil reserves. However, that source of wealth and others in Venezuela were predominantly in the hands of an intransigent upper class and corrupt politicians.

Riding a wave of popular discontent, Chavez enacted legislation that enabled him to nationalize the oil, electric and telecommunications industries. He initiated a wide variety of land-redistribution programs. He used oil income to underwrite many “free” services, including health care, higher education, and extensive new social programs for the poor. He set prices for food and commodities, such as gasoline, far below the real market price.

Long before the precipitous drop in international oil prices, the wheels on the Venezuelan economy begin to fall off. The small but innovative entrepreneurial class in Venezuela could not abide the socialist economy. Many left, abandoning productive enterprises and taking their innovative ideas and talents with them. Those who replaced them were mostly government appointees, not well-prepared managers.

Basic goods such as food, clothing, and gasoline became harder to find at the price set by the government. Black markets quickly developed. The very people whom Chavez wanted to help were those most hurt by his new socialism. His socialist successor, Nicolas Maduro, was elected president after Chavez died in 2013.

Today Venezuela is in crisis. Maduro has nationalized the food-supply system, delegating even more power to the federal government and its military apparatus. Before 1999, Venezuela was a net exporter of some foodstuffs. Today its citizens wait in long lines at its border with Colombia to buy basic food items with currency that is experiencing an almost 500 percent inflation rate.

Private-property confiscation continues, the most recent being the takeover of a local Kimberly-Clark Corp. plant that produces toilet paper. The plant closed because of the lack of currency and credit. Kimberly-Clark could not buy raw materials.

To add insult to injury, Cerveceria Polar, the country’s largest brewery, employing close to 10,000 workers, closed for lack of malted barley. Interviewed by USA Today, a former Chavez/Maduro supporter asked, “What are we coming to when you can’t even buy beer?” He answered his own question by saying, “This country is coming apart.” Venezuela’s unemployment rate this year will be 21 percent.

In just 17 short years, Venezuela has gone from rapidly developing country to a place on the economic critical list.

The rapid economic demise of Venezuela is only the most recent example of well-intentioned socialism going awry. Whether it be Cuba, Russia, North Korea, or other less obvious examples, socialism as a concept has great appeal initially but eventually turns sour. This is not because one economic class cares little for others. It is not because socialism is inherently evil and capitalism all good. It is simply human nature.

People need incentives to do the right things. Producing goods and services, creating the capital to do so, and working hard so you and your family enjoy the fruits of labor are mostly what capitalism is about. Systems that discourage these propensities sooner or later create economic calamities that hurt the poor — the very people socialism purports to help.

Those who seek to address the problem of unequal income distribution often see democratic socialism as an answer. About 50 percent of Americans who are 18 or 19 years old agree that “socialism has a positive impact on society.” Gallup reports that 36 percent of Americans have a positive view of socialism. Of course, those who hold a favorable view of democratic socialism are not talking about a Chavez-style economy but rather one like those of Sweden and other Western European countries.

To be sure, these countries’ historically homogeneous populations enjoy social services that many Americans do not, and their national income is more evenly distributed. However, socialism is a slippery slope. It would take the United States much longer than 17 years to descend into economic oblivion, but the possibility is certainly there.

Every step toward socialist economics should be weighed carefully. Thirty years from now, we don’t want our grandchildren to think we were insane.

Michael A. MacDowell is the managing director of the Calvin K. Kazanjian Foundation and a president emeritus of Misericordia University in Pennsylvania.