April 26, 2017
Venezuela is a naturally rich nation. It's ranked seventh worldwide
for biodiversity and has the world's largest reserves of oil. This is a
country that deserves, more than most, to thrive. However, as in all
countries, it passes through economic cycles and, when on a downward
curve, would-be leaders take the opportunity to claim that the "greedy
rich" have sent the economy into a tailspin (which can sometimes be the
case) and that the solution is to adopt a collectivist approach to
In 1989, Venezuela was experiencing a downturn. Riots broke out,
followed by two attempted coups in 1992. The following year, President
Pérez was impeached for embezzlement of public funds and the red carpet
of opportunity was rolled out for the charismatic former-coup
He took office as president. A new constitution was drawn up in 1999
and, as in so many countries previously, the people enthusiastically
welcomed the new collectivist regime.
"When people can vote on issues involving the transfer of wealth
to themselves from others, the ballot box becomes a weapon with which
the majority plunders the minority. That is the point of no return, the
point where the doomsday mechanism begins to accelerate until the system
self-destructs. The plundered grow weary of carrying the load and
eventually join the plunderers. The productive base of the economy
diminishes further until only the state remains."
- G. Edward Griffin
As in all collectivist experiments, the new entitlements meted out to
the population had to be funded somehow and, as is customary, those who
create the wealth in Venezuela were required to pay for its
distribution to those who were less productive.
In the beginning, this form of theft appears to work well and, not surprisingly, many of the supporters of Mister Chávez
saw him as the messiah of the common man. Unfortunately, as is always
the case, bleeding the wealth from those who create it makes it
increasingly difficult for them to continue to expand the creation of it
and, as the wealth continues to be drained, contraction eventually
takes place, making the entire nation poorer in every way.
At some point the collectivist system begins to unravel and, as luck
would have it, the unravelling for Venezuela coincided with the death of
its cherished leader.
In 2013, former bus driver Nicolás Maduro was elected as his
successor. Two months earlier, the currency had been devalued to combat
increasing shortages of basic goods and Venezuela fell into recession
within a year of Mister Maduro taking office. By 2016, he declared a
state of national emergency and proceeded to institute a series of
knee-jerk responses to increasing economic decline, which would, to some
degree, appease the struggling populace, but which would, ultimately,
exacerbate the problem.
As conditions have worsened, Mister Maduro's "solutions" have become increasingly desperate. (Editor's note: Jeff Thomas has provided commentary on the Venezuela decline in several editions of International Man: "Watch the Movie," Jan. 2014, "Venezuela, the Sequel," Dec. 2016 and "A Chicken in Every Pot," Dec. 2106.)
In so doing, he hasn't exactly been creative. He has, instead,
resorted to all the classic measures that have been used by
collectivists before him. The unfortunate conundrum for a collectivist
leader is that the real solution is a return to the free-market system
and no leader is going to admit that his entire
raison d'être has been based upon a false premise.
It's important to note that, in any nation, the populace tends to
believe that their leader's efforts, however flawed they may have been,
were intended to serve the people well. However, this is almost never
the case. I've known many political leaders personally and can attest
that, regardless of the nation they represent, their concern is almost
entirely for their own personal welfare and advancement. In fact, those
who are pathological in this pursuit are very often the most successful
in rising to the top, by virtue of their heightened determination and
obsession with self-aggrandizement.
And so, Mister Maduro has relied on ever-increasing price controls,
capital controls, devaluation of the national currency, takeover of
private sector industry, and governance by decree. Each of these
measures, in every instance, served to send the Venezuelan economy
spiraling further downward.
The result has been a decline in the creation of wealth, the
cessation of production of many essential goods, the overtaking of
factories by the military, a dramatic increase in crimes of desperation,
the alienation of overseas business partners, purchasers and vendors
and an inability to pay international debt.
This last failure has led to an ironic situation. Although the
national currency is in a state of hyperinflation, Venezuela cannot pay
for the shipments of new, higher-denomination bank notes it has ordered
from printers overseas, as the inflated currency is not trusted by the
At this point, if the leader of a country truly had any loyalty to
his country or compassion for his people, he would most certainly have
resigned, as he is clearly unfit to lead.
But this almost never occurs. Whether the leader is Josef Stalin,
Juan Perón or Fidel Castro, no matter how dire the conditions become for
the populace, the leader steadfastly refuses to relinquish the reins.
What occurs instead is that he maintains his own personal level of
lavish lifestyle, circles the wagons, continues or expands upon the
measures that have caused the destruction and becomes
It's important to understand that it's highly unusual for the leader
to capitulate at this point. Almost invariably he will opt for the
country to go down in flames around him rather than relinquish power.
That being the case, we now observe that Mister Maduro, having run
out of rabbits to pull out of the hat, has made the decision to sell the
golden goose that was responsible for the creation of wealth in the
first instance - oil.
PetroPiar is owned 70% by the state-run Petróleos de Venezuela, and
30% by its overseas partner, Chevron. The government has now offered to
sell a portion of its shares to the Russian Rosneft, along with a stake
in the rights to extract oil from the premium-grade Orinoco Oil Belt.
This, of course, is no less than a stab in the back for Chevron.
(Rosneft faces sanctions from the US, which, of course, Chevron does
Venezuela has also expropriated shares belonging to ConocoPhillips,
for which it has not yet paid, at the same time as they're negotiating
with a Japanese investment bank to obtain further funding.
Each of the above has been undertaken in a desperate attempt to pay
external debt, which, until the present, has allowed the Venezuelan
economy to continue to function. It also allows for the emergency
delivery of gasoline to keep Venezuela in motion. Although Venezuela has
eighteen of its own refineries, they've also fallen victim to the
economic crisis and without emergency gasoline supply from overseas,
thousands of workers will be unable to report for work to keep what
remains of the economy functioning.
And so Mister Maduro, in order to buy a bit more time in the
presidential mansion, is selling the golden goose. For those who wonder
why it's so often the case that a nation that's been knocked down
economically rarely rises up again within the same generation, the
answer is manifestly clear in Venezuela. Leaders on the way out tend to
sell or destroy virtually all that's of value within the country,
eliminating the resources through which a recovery may be possible, even
if the country then returns to a free-market system.
Jeff Thomas is British and resides in the Caribbean. The son of an economist and historian, he learned early to be distrustful of governments as a general principle. Although he spent his career creating and developing businesses, for eight years, he penned a weekly newspaper column on the theme of limiting government. He began his study of economics around 1990, learning initially from Sir John Templeton, then Harry Schulz and Doug Casey and later others of an Austrian persuasion. He is now a regular feature writer for Casey Research’s International Man (http://www.internationalman.com) and Strategic Wealth Preservation in the Cayman Islands.
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