The Collapse of 'Saudi Venezuela'

Once the region's richest country, now a leading producer of refugees.

Shocking scenes reveal the collapse of Venezuela-style socialism. Many poor Venezuelans pick through garbage to find food. Others, however, have given up altogether on oil-rich yet impoverished Venezuela. In untold numbers, they join ragtag columns of refugees trekking under a blazing sun into neighboring Colombia. An estimated 100,000 per month now cross into Colombia, legally and illegally, according to Colombian officials. Many remain in Colombia – up to half a million by some estimates. Others push on to other countries. Among the most popular are Brazil, Panama, Ecuador, and Chile, where poor migrating Venezuelans sometimes encounter anti-immigrant sentiments. The backlash is animated by a sense that Venezuela – once the region’s richest country, known enviously as “Saudi Venezuela” – is getting its comeuppance. In Panama, a popular rap song tells of a Venezuelan woman who “was famous in her own country but here does something else” — an apparent reference to prostitution.

Venezuela’s socialist disaster abounds with tragic ironies. The biggest revolves around Venezuela’s poor majority. The poor idolized Hugo Chávez, believing the firebrand leftist would improve their living standards by giving them their rightful share of Venezuela’s oil wealth. In Chávez, they also saw a charismatic politician who grew up poor like them, talked like them, and looked like them with his swarthy complexion and curly black hair.

There is a tragic irony here. Poor Venezuelans have instead suffered the most under Venezuela-style socialism. The regime’s biggest follies – a command-and-control economy, nationalizations, and draconian price controls – have set off hyperinflation, corruption, and shortages of basic goods: food, medicines, and even toilet paper. Public safety also has deteriorated, with the poor affected the most by a rampaging murder rate concentrated in the lawless slums doting the country and looming above Caracas, the capital. Venezuela’s murder rate is now one of the world’s worst, having quadrupled since Chávez was elected 20 years ago.

Regional political leaders, rights groups, and U.N. officials have called what’s happening a “humanitarian crisis.” None of them, however, has dared to name the root cause of Venezuela’s misery: socialism.

Chávez, ironically, had pledged during his first election campaign in 1998 to reverse declining living standards and clean up rampant corruption. Venezuelans, for their part, were ready for a political outsider. They longed for the bygone years of “Saudi Venezuela,” a period of prosperity during the mid-1970s to early 80s when oil prices soared and even maids were said to afford shopping trips to Miami. Venezuela became the region’s wealthiest nation – a beacon of democracy that attracted migrants from poorer neighboring countries.

Chávez, a former Army paratrooper who led an aborted military coup in 1992, talked during his first presidential run of a “third way” between socialism and “savage capitalism.” But not long after his landslide election victory, which drew support across class lines, Chávez ominously declared that Venezuela would swim with communist Cuba toward the same “sea of happiness.” And eventually he followed through on that promise, declaring Venezuela would adopt “Twenty-First-Century Socialism.” He boasted of forming alliances to counter-balance U.S. hegemony, which he considered a danger to the world. His strongest alliance was with Cuba.

It was a gigantic bait-and-switch: socialism and anti-Americanism, after all, were never part of Chávez’s first political campaign. Yet Venezuela’s poor majority voted for Chávez in one election and referendum after another. They supported or shrugged off big paternalistic government, widespread nationalizations, and the reckless expansion of inefficient state industries with their typically bloated payrolls and waste.

And above all, they embraced Chávez’s bread-and-circuses social programs or “missions” as they were called: free or subsidized housing (often shoddily constructed), government-owned supermarkets (with long lines and limited items), and myriad other goodies. And no matter if many recipients were not poor, noted Raúl Gallegos’ book “Crude Nation: How Oil Riches Ruined Venezuela.” Citing statistics from Venezuelan poverty expert Luis Pedro España, Gallegos noted that “nearly half of the roughly 2.5 million Venezuelans who benefited from _Chavismo’s_ social programs were not considered poor at the time.” Specifically, half of those buying food in state-owned markets were not entitled to such subsidies, and in the case of those receiving subsidized apartments “nine of ten recipients were not considered poor either.” Gallegos added that “nearly four of every ten people who claimed not to benefit from missions felt excluded from them because they did not support Chavismo,” as Chávez’s political movement was called.

In short, soaring oil prices saved Chávez from his own ineptitude. They soared from $12 a barrel when Chávez was elected in 1998 to more than $105 a barrel in 2013. The oil bonanza guaranteed an uptick in prosperity – even with epic levels of mismanagement and corruption.

‘Devil’s Excrement’

It’s wasn’t entirely Chávez’s fault. It was oil culture. In Venezuela, big government, oil wealth and corruption go hand in hand. It’s the paradox of Venezuela’s oil wealth – and poverty. Oil discourages the economy from diversifying. Why do that when oil pays the bills? Venezuela thus produces little of its own beyond pumping oil which represents 80 percent of exports. Corruption is fostered by weak institutions and lack of checks and balances in a statist system. But perhaps the most insidious outcome is how oil culture affects ordinary people. For instance, 48 percent of Venezuelans believe the government can solve all of society’s problems – and 81 percent believe it can solve most problems, according to a 2011 poll by Latin American pollster Latinobarómetro cited in “Crude Nation.” “That was nearly twice the average of similar responses in the rest of Latin America,” wrote Gallegos, a former Caracas-based correspondent for Dow Jones Newswires.

The second era of “Saudi Venezuela” ended when oil prices collapsed in 2015. By then Chávez had died of cancer, and his protegee and successor, Nicolás Maduro, a bus driver-turned-politician, had insufficient petrodollars to pay the bills. How did he respond? He doubled down on Chávez’s disastrous polices – setting off the worst economic crisis in Venezuela’s history. Maduro has earned the enmity of the poor – yet many of them, conversely, still regard Chávez as a saint.

The economic havoc includes the demise of Venezuela’s once respected state oil company Petróleos de Venezuela (PDVSA), the fountainhead of Venezuelan’s wealth. PDVSA has been hallowed out by mismanagement and corruption under Chavismo. Investment also suffered in basic infrastructure, reflected in regular power blackouts and water shortages.

The humanitarian crisis isn’t affecting everybody, to be sure. Long ago, wealthy Venezuelans fled to their second homes in the U.S. and other first-world getaways. This includes many who got rich from Venezuela’s corruption gravy train and crony capitalism, both before and after Chávez. Members of the middle-class followed. In the Miami area, some neighborhoods and schools are now filled with Venezuelans. One wonders if they will be future Democrats. The poor have no such opportunities. They can only become refugees, fleeing like other refugees of socialism – from Cuba and East Germany to China and Soviet Russia. No surprisingly, this exodus has not headed to Cuba, whose leaders have played a behind-the-scenes role in Venezuela’s socialist disaster. In total, 2 million to four million Venezuelans have migrated (7 to 13 percent of the population) – a number putting Venezuela’s refugee crisis on par with Syria’s. The vast majority fled after 2014.

Pablo Pérez Alfonso, a Venezuelan diplomat who founded OPEC, presciently observed in 1975 that oil wealth would ultimately destroy Venezuela. “I call petroleum the devil’s excrement,” he wrote. “It brings trouble…Look at this locura – waste, corruption, consumption, our public services falling apart. And debt, debt we shall have for years.”

It has become known as the resource curse – a problem that besets developing countries blessed with abundant natural resources – but also saddled with weak institutions and an uneducated population. In Venezuela, the resource curse became a perfect storm. Do poor Venezuelans understand what happened? In “Crude Nation,” Gallegos tells the story of José Luis González, a pseudonym for a young man who lives with his family of five in a poor barrio – a supporter of Chávez’s “rhetoric of economic redistribution.” Chávez initially met his expectations – thanks to Venezuela’s short-lived oil boom.

So what might González think today of Venezuela-style socialism? Gallegos doesn’t say. But like millions of other poor Venezuelans, he probably remains clueless about what happened. Gallegos, for instance, notes that González “is not educated enough to fully understand concepts like democracy, socialism, inflation, or devaluation. Datanalisis (a Venezuelan polling firm) estimates that nearly six of every ten Venezuelans lack enough formal education to achieve abstract thinking.” “Most Venezuelans are susceptible to emotions, not rational thoughts” regarding political issues, he quotes Datanalisis president Luis Vicente León as saying. “Indeed, León’s polling firm found in 2010 that while Venezuelans approved of Chávez’s Twenty-First-Century Socialism, nine out of ten people reject the idea of adopting Cuba’s political and economic model,” Gallegos writes. “What they like and crave is government assistance, and like previous generations, they will continue to support whoever promises to give them a larger share of oil wealth.”

Blame it on Venezuela’s oil wealth and the entitlement culture it created. The “devil’s excrement” indeed.

David Paulin, an Austin, TX-based freelance journalist, covered Hugo Chávez’s rise to power while based in Caracas as a foreign correspondent. He also reported from the Caribbean while based in Kingston, Jamaica.