Oil didn't wreck Venezuela's economy. Socialism did.
Venezuela's economy is collapsing. The country has topped Bloomberg's "Economic Misery Index," which takes into account several economic measures, for two years. Runaway inflation and high unemployment are plaguing the country.
The country's government is taking emergency measures, including increasing the price of gas (which is still among the cheapest in the world) and devaluing the currency to tackle runaway inflation.
If you read much of the commentary, people blame the country's economic woes on the low oil price. It is true that Venezuela's economy is highly sensitive to the oil price, because it is a significant part of the economy. The oil and gas sector accounts for around 25 percent of the country's entire gross domestic product. Venezuela's oil also has high sulfur content, which makes it more expensive to refine, and makes Venezuela's economy more sensitive to oil price drops.
But while the oil price drop may have been a proximate cause, and an aggravating factor, Venezuela's economic woes predate the current oil price drop by many years, and were going on even while the oil price was high, under President Hugo Chavez. The culprit is clear and obvious: The problem is Venezuela's authoritarian socialism.
The country has had food shortages for many years, because many foodstuffs are price-controlled. If there's one thing all economists agree on, it's that price controls lead to rationing. And yet, the government insists shortages are due to greedy hoarders. President Nicolás Maduro has recently taken over a supermarket chain, arguing that it was hoarding. The currency crisis also means that food imports are prohibitively expensive, and capital and exchange controls mean there is often no way to produce the money to buy things even when they are available. Venezuela shows us a sight familiar to those who experienced Soviet Communism — long lines to buy food — in an oil-rich country.
Under Chavez, Venezuela nationalized a swathe of industries, including oil projects, and instituted a 50 percent windfall tax on oil profits, driving away oil companies. Sometimes the government just seized them. The government nationalized agriculture projects and major agricultural companies. It has also nationalized several banks and shut down others. It also took over the cement sector and the country's biggest telecommunications company, as well as utility companies.
Transparency International ranks Venezuela in the top 20 of the world's most corrupt countries. According to a Gallup poll, 75 percent of Venezuelans believe corruption is rampant at every level of the government. If you were a business owner in a country where the government is seizing companies left and right, you might believe a bribe is the only way to keep your living. Caracas is the murder capital of the world.
President Maduro recently arrested the mayor of Caracas, a virulent opponent of the regime, on charges of fomenting a coup d'état. TV channels and other media hostile to the regime are frequently harassed, or even shut down. None of these things are due to low oil prices. Instead, they are due to misguided government policies.
And, for conservatives, it's a useful reminder. Socialism is what produces bread lines in an oil-rich country. In developed countries, economic debates often focus on narrow questions, such as raising the minimum wage, where it's possible for reasonable people to disagree. This leads to an impression that the relative merits of free enterprise and big government policies can be in the eye of the beholder.
To a certain extent this is true. Or, at any rate, different economic policies affect individual countries differently. Make no mistake: A free enterprise system requires an important role for government. But while unleashed capitalism can have unseemly side effects, no policy produces the kind of sheer economic devastation that authoritarian socialism does. Sadly, Venezuela gives us yet another example.