What's Up-Down in Venezuela

"Crude Nation: How Oil Riches Ruined Venezuela" by Raul Gallegos (2016, Potomac Books)

Review by Bill Doughty

What are the "odd things" that happen when toilet paper disappears? When did Venezuela become an "oil-drunk" nation and the "world's craziest economy"? How did this once-richest South American nation implode with hyperinflation and food and water (and toilet paper) shortages? Will the United States military be sent to intervene in the current crisis?

Raul Gallegos answers most of these questions and explores the history of Venezuela from the time oil – what one leader eventually called "the devil's excrement" – was discovered just over 100 years ago.

"This is a country where money simply oozes and bubbles out of the ground almost effortlessly, with very little human intervention," Gallegos writes.

A nearly worthless 100-bolivar note is now nearly worthless.

For years Venezuelans consumed gasoline like water in "4x4 sport utility vehicles, Humvees and fast cars" and "dilapidated gas-guzzlers from the 1970s" serving as taxis. Citizens spent money on plastic surgery, direct TV and brand clothing. The government did not invest in infrastructure, and few people saved for the future.

Gallegos writes, "For decades Venezuelans have been brought up to think that saving money in a bank is the fastest way to lose it, because oil riches are unpredictable and, with time, money becomes worthless."

Chavez's memory, policies and Chavismo kept alive under Maduro's clenched fist.

Under former and late dictator Hugo Chavez's Chavismo form of authoritarian socialism, "the government has lavished billions of dollars on fighter jets, helicopters and advanced military technology for armed forces that have never fought a war."

The government provided subsidies unequally to the richest families and haphazardly gave free housing to some poor people. This decreased self-reliance and created greater inequality in the face of hyperinflation. In February 2016 the government began printing higher denomination bolivar notes.

"Other countries have been down this path before, and it doesn't end well. it usually leads to episodes of hyperinflation such as those in Austria, Germany and Hungary after World War I, the Philippines under Japanese occupation during World War II, and even China when the Yuan Dynasty printed cash to finance its wars. The most notable hyperinflation episodes in history have occurred in countries trying to recover from a war or attempting to finance a military campaign. Venezuela is a country at peace, and the runaway spending that left the country with triple-digit inflation cannot be explained away by a military conflict."

Chavez and his successor Nicolas Maduro are only the latest in a chain of corrupt, greedy and/or incompetent leaders who came to power under questionable circumstances, a far cry from the freedom-loving founder of the nation, Simon Bolivar. 

Juan Vicente Gomez

Kleptocratic leaders have included Gen. Marcos Perez Jimenez, Carlos Andres Perez and the first Venezuelan leader who seized power just before oil was discovered, Juan Vicente Gomez. 

"There was no real government and no clear rule of law. Gomez was the state; he was the law; he was God. And Venezuela was his personal Eden," Gallegos writes.

The problem then was not socialism but a form of distorted capitalism.

"Oil became a godsend for Gomez. World War I was under way, and the navies of the world powers had converted from coal to oil as a source of fuel. The oil industry had begun in Pennsylvania some sixty years earlier, and oil was no longer used just to light kerosene lamps. Henry Ford had been producing his Model T for six years when the Zumaque oil well began production. Crude was a prized resource that brought Venezuela instant wealth and gave Gomez enough power to rule the country in one form or another for twenty-seven years. He allowed foreign companies to drill for oil, paying nothing in taxes and royalties, and they backed his dictatorship. He would first grant oil concessions to friends, family, and business cronies, who would later resell them to foreign companies for profit. This racket afforded him many friends and allowed him to build an immense personal fortune. By the time he died peacefully in bed in 1935, Gomez had become one of Latin America's richest men. He owned vast tracts of land and controlled paper, soap and cotton production, to name a few industries. At one point, every time a Venezuelan ate meat, drank milk or lit a match, Gomez would grow richer. He had little patience for dissent. Opponents would disappear or be tortured or poisoned in prison, because dictatorship seemed necessary at the time."

Today, the country ranks highest in the misery index. Gallegos shows how Venezuela ranks "dead last" in wastefulness, ethics and corruption rankings of the World Economic Forum's 2015-2016 Global Competitiveness Report. He compares the Andean nation with Qatar, United Arab Emirates, Finland and Norway, nations that have invested rather than squandered their resources.

In "Crude Nation," Gallegos suggests pegging Venezuela's bolivar to the dollar to bring rationality back to the economy.

"The first step in managing Venezuela's addiction to spending oil money uncontrollably is admitting the problem. Venezuela's long tradition of trying to spend more oil money than it can safely digest has deformed its economy, its institutions, and its society. Venezuela has become an upside-down world where politicians are not accountable to voters but to themselves, and voters have learned to beg their government for a living. The military is run by entitled generals who have never fought a war but who demand privilege, shiny new planes, and power over civilians. Businesses expect abnormally high profits without being competitive or efficient. Credit-card-happy consumers have no incentive to save any money but go into debt to shop compulsively instead. Poverty and inequality are legitimate concerns in Venezuela, but the country's underlying problem is wealth mismanagement. No amount of money has even been enough for Venezuela to become a stable, well-managed country. No amount of money has helped Venezuela consistently reduce poverty. In fact it often seems as if the more money Venezuela earns, the worse off it becomes. Venezuela has become a country with no future that lives only in the present."

But a therapeutic intervention does not necessarily mean a military intervention.

Stavridis

Retired Adm. James Stavridis said this on the Morning Joe show Jan. 31: 

"This is the country that Simon Bolivar centered. This is the Bolivarian Republic of Venezuela. This is where democracy began in the Americas. So, at the end of the day, the tragedy here is not Nicolas Maduro, the current leader; it's Hugo Chavez, who preceded him, invented this half-baked socialist strategy called Chavizmo named after himself, and destroyed the oil industry, cratered the economy and then died just as oil prices went down, and handed the whole mess to a bus driver named Nicolas Maduro. If there was ever an example of Karl Marx's line that history always repeats itself first as tragedy then as farce, it's Venezuela going from Chavez, the tragedy who destroyed the country, to Maduro, the farce ... There's not a good military option here. There'll be temptations to steam a carrier battlegroup down there or put the 82nd Airborne on alert. Wrong, wrong, wrong. This is political, economic, diplomatic ... I think there's a two in three chance we can sort this thing out reasonably, but us loading up the military and launching it is not the right next move," Stavridis said.

Gallegos sums up "Crude Nation" as "a tale of how hubris, oil dependency, spendthrift ways, and economic ignorance can drive a country to ruin." Unfortunately, a lack of toilet paper is the least of the problems facing the people of Venezuela today.