Dispiriting Entrepreneurialism

One of the hallmarks of countries that say they are in pursuit of pure socialism or communism is how horrible their economies are for the vast majority of their citizens. Having visited the Soviet Union before its fall, China before capitalism (with “Chinese characteristics”) took hold, and even Cuba, my memory is always of meager lives for most, buildings worn or in need of repair and lots of gray (brown for Cuba). A stultifying drab sameness. Although Cuba had more of a cultural spark, music and smiling citizens, the quality of daily life was pretty much on the bottom or below the standards we are used to in the developed world.

Russia has shaken communism, China has adopted a mix of capitalism and communism that has to be unique in the world (an amazing, centrally-directed economic explosion), and Cubans are chomping at the bit to watch their communist values give way to modern entrepreneurial growth. North Korea, which protects only elites and seems adequately to feed only those in the military or the police, offers nothing but bleak and disheartening repression for everyone else. We lost the war against communist North Vietnam, but Chinese-style capitalism is growing there by the minute, and our relations with that nation – now just Vietnam – are excellent.

We watch as socialist parties win elections in European nations, but somehow private businesses big and small weather the change, sometimes even growing significantly in that populist soil. Latin American populism is legendary, from the radicals of the 1970s, like Argentina’s Juan Domingo Perón (he died in 1974) or Chile’s Salvador Allende (deposed in 1973) to more contemporary rulers like Bolivia’s Evo Morales and Venzuela’s Hugo Chávez (died in 2013 and was replaced by similarly directed Nicolás Maduro Moros).

Communism and socialism are often fundamental platforms for so many of these populist presidential candidates, frequently with a proclivity to nationalize big business and place them directly under government control. Over the ages, these far left governments have faced overt but mostly covert American efforts to overthrow leaders who have veered so far into socialism and communism. We’re were ostensibly preventing the much-feared-domino effect of possible rampant communism and the hit to American corporations divested of their holdings.

Relations between Venezuela and the United States have been particularly strained over recent years, first from the deeply anti-American polices of Hugo Chávez, and then only amplified by his successor, Nicolás Maduro, a bumbling self-designated Chávez-clone. U.S. policies are heavily against the Maduro regime. The countries exchange vituperatives in international forums, but no one can launch into a hot tirade like a Latin American populist on a political podium.

I’ve already blogged about extremes in economic beliefs – socialism vs raw capitalism – and the best mix always seems to be a prudent and adaptive version with a bit of both. But if Americans fear creeping socialism, perhaps the lesson of economies that just do not work “for the people” should be enough of a palliative to let us relax. The more socialist the economies, the lower the quality of life – sooner or later. It seems to take a few entrepreneurial boosts to enrich the overall society. And if the most recent Latin American experiment with populist socialism is any example of the blessings of socialism – Venezuela – the best argument for why this path is a non-starter is a simple examination of the spoils of that country’s economy. Stores with empty shelves. Salaries eroded into nothing by staggering levels of inflation. Commerce at a virtual standstill. With oil prices at a deep discount, nothing seems to be going well for Mr. Maduro’s failing experiment.

The October 18^th New York Times fills in the color: “When robbers carjacked Pedro Venero, an engineer, earlier this year, he expected they would drive him to his bank to cash his check for a hefty sum in bolívars — the sort of thing that crime-weary Venezuelans have long since gotten used to. But the robbers, armed with rifles and a grenade, and sure that he would have a stash of dollars at home, wanted nothing to do with the bolívars in his bank account… ‘They told me straight up, ‘Don’t worry about that,’ ’ Mr. Venero said. ‘Forget about it.’…

“A year ago, $1 bought about 100 bolívars on the black market. These days, it often fetches more than 700 bolívars, a sign of how thoroughly domestic confidence in the economy has crashed.

“The International Monetary Fund has predicted that inflation in Venezuela will hit 159 percent this year (though President Nicolás Maduro has said it will be half that), and that the economy will shrink 10 percent, the worst projected performance in the world (though there was no estimate for war-torn Syria).

“That would be a disastrous drive off the cliff for a country that sits on the world’s largest estimated oil reserves and has long considered itself rich in contrast to many of its neighbors… Yet the real story goes beyond numbers, revealed in the absurdities of life in a country where the government has refused for months to release basic economic data like the inflation rate or the gross domestic product.

“Even as the country’s income has shrunk with the collapsing price of oil — Venezuela’s only significant export — and the black market for dollars has soared, the government has insisted on keeping the country’s principal exchange rate frozen at 6.3 bolívars to the dollar.

“That astonishing disparity makes for a sticker-shock economy in which it can be hard to be sure what anything is really worth, and in which the black-market dollar increasingly dictates prices… A movie ticket costs about 380 bolívars. Calculated at the government rate, that is $60. At the black-market rate, it is just 54 cents. Want a large popcorn and soda with that? Depending on how you calculate it, that is either $1.15 or $128… The minimum wage is 7,421 bolívars a month. That is either a decent $1,178 a month or a miserable $10.60…

“Dinner for two at one of this city’s better restaurants can cost 30,000 bolívars. That is $42.85 at the black-market rate or $4,762 at the official exchange rate… With crucial legislative elections scheduled in December, the government has begun to make refrigerators, air-conditioners and household appliances available to government workers and the party faithful at rock-bottom prices. One government worker said he had bought a Chinese-made 48-inch plasma television for 11,000 bolívars, or just $15.71 at the black-market exchange rate.

“Mr. Maduro blames an ‘economic war’ waged by his enemies, foreign and domestic, for the problems. But most economists say the problems are caused by the fall in oil prices and the government’s policies, including strict controls on prices and foreign exchange for imports.

“As the crisis has unfolded, Mr. Maduro has hesitated to make changes even top officials say are needed, like raising the price of gasoline, which is so heavily subsidized that it is virtually free — perhaps because he is fearful of a backlash before the elections.

“Things get stranger by the day… Need a new car battery? Bring a pillow, because you will have to sleep overnight in your car outside the shop. On a recent night, more than 80 cars were lined up… Want a new career? Plenty of Venezuelans have quit their jobs to sell basic goods like disposable diapers or corn flour on the black market, tripling or quadrupling their salary in the process.”

Not likely that nations around the world are jealous of Maduro’s Venezuela. Pretty sure he hasn’t made the notion of socialism any more attractive to… well… anyone anywhere. So when folks extoll the virtues of a free market economy – if only the United States actually had one (distortions from tax loopholes and regulatory exemptions suggest otherwise) – they can always cite Venezuela as the bad example they need. On the other hand, we still have an income inequality issue that is going to rock our next presidential election as THE ISSUE, so standby!

I’m Peter Dekom, and I have a suspicion that the kind of “Democratic Socialism” touted by presidential candidate, Bernie Sanders, isn’t predicated on the Venezuelan model!