How Socialism Damaged Venezuela

See Venezuela’s Collapse Exposes the Fake Socialism Debated in U.S.: Would American politicians even recognize true socialism as they laud or lambaste it?

"“Socialism” is, of course, a big tent, having at one point included Soviet communists and Scandinavian social democrats. Every country is a little bit socialist insofar as every government owns some productive assets. Until the 1980s, government ownership in strategic industries such as telecommunications, energy, and transportation was commonplace.

Venezuela was no exception: In 1976, like many developing countries, it nationalized the oil industry with the creation of state-owned PdVSA. It was, until the 1990s, relatively well run.

Though Mr. Chávez denied he was a socialist when first elected president in 1998, he soon radicalized, says Ricardo Hausmann, a former Venezuelan government official and now an economist at Harvard University who supports regime change.

Soaring oil revenue in the 2000s enabled Mr. Chávez to embark on a sweeping nationalization of the economy. The government “expropriated six million hectares of land, the steel sector, cement sector, supermarkets, telecoms, banks, dairy factories, coffee processing factories, hotels, and essentially ran all of them into the ground,” says Mr. Hausmann. It imposed controls on prices, imports and foreign exchange, which in effect expropriated the cash flow of private companies.

When oil revenue fell because of mismanagement and falling prices, the government forced the central bank to print money to finance its spending, resulting in hyperinflation and the current economic collapse.

Venezuela’s socialism, which was heavily influenced by Cuban communism, isn’t just a disaster; it’s unique. Despite the region’s long history of left-wing populism, no Latin American country has since followed Venezuela’s path. Nicaragua, Bolivia and Ecuador have left-wing governments allied with Venezuela, but “all have free trade, private ownership and a market mechanism,” says Mr. Hausmann.

Under former President Rafael Correa, Ecuador did force foreign oil companies to renegotiate contracts under threat of nationalization. But unlike Mr. Chávez, Mr. Correa couldn't finance a massive expansion of the state by printing money: Ecuador gave up its own currency for the dollar in 2000. Inflation averaged just 3.8% during Mr. Correa’s 10 years in office, noted Sebastian Edwards, an economist at the University of California at Los Angeles."