7 Years of Plenty, 70 Years of Famine: Understanding Venezuela’s Crisis
“I’d have been better off broke.” This is how Abraham Shakespeare, a $30 million American lottery winner, described his windfall.
“It’s just upheaval that they’re not ready for,” a financial consultant explained. “People have had terrible things happen.” A common “filler” story for news channels is the “Curse of the Lottery.” These cautionary tales warn of how receiving large and sudden quantities of wealth without preparation leads to ruin. Venezuela should have heeded these warnings. The ongoing Venezuelan crisis can be better understood through this mythical “Lottery Curse.”
In 1998, the Venezuelan people democratically elected Hugo Chávez as their president. For the first few years, Chávez ran the country competently. Then the bonanza hit.
In 2002, oil prices surged. Venezuela has the largest oil reserves in the world, and its only oil company is, unsurprisingly, state-owned. Due to this price surge, Venezuela brought in over a trillion dollars of revenue over the next decade, and its GDP per-capita quadrupled. Hugo Chávez had just drawn the dream hand for a socialist leader: popular support, consolidated power, and seemingly unlimited cash. For all intents and purposes, Venezuela had just won the lottery.
Like many who stumble upon such a jackpot, Chávez’s first instinct was to spend. He created countless new social programs and showered his political and military allies with wealth. Venezuelans prospered under Chávez’s lavish rule. During his fourteen years as president, infant mortality dropped by nearly half, unemployment reduced by half, and the poverty rate decreased by two-thirds. Minimum wages spiked up, as did the literacy rate and the general quality of life across Venezuela. Material wealth lulled the country into a false sense of security. Enamored by its present, Venezuela neglected its future.
[pullquote]Enamored by its present, Venezuela neglected its future.[/pullquote]
Chávez had not just redistributed wealth; he had also redistributed power. His party seized control by rewriting Venezuela’s constitution, taking over
businesses, and weakening the legislative branch while packing the courts. The military and political elites lined their pockets with petrodollars and had priority access to invaluable foreign currencies. Criticism was squashed and speech was silenced.
As Chávez’s health declined, however, he handpicked Nicolás Maduro as his protégé and entrusted him to defend his legacy. Maduro, a bus driver without a high school education, won the highly-contested 2013 election by a thin margin. He then took the wheel and drove the unwitting Venezuelan people straight into disaster. This became clear when the inevitable happened: oil prices dropped.
[pullquote]Maduro then took the wheel and drove the unwitting Venezuelan people straight into disaster.[/pullquote]
As many lottery-winners do, Venezuela had spent instead of saved. Oil prices fell in 2014 and— since oil constituted 98 percent of Venezuela’s exports—Chávez’s gilded house of cards collapsed. Instead of allowing excessive social programs to fail, Maduro propped them up by printing money uncontrollably. Both Chávez and Maduro neglected to make capital investments, failed to support local manufacturing, and weakened any long-term safety nets. As is the case with many lottery winners, Maduro and Chávez crippled Venezuela by making it dependent on temporary wealth.
Maduro attempted to mitigate the damage by fixing foreign currency exchange rates and capping the costs of necessities such as food and medicine. At the same time, he inflated the Bolívar, Venezuela’s currency, to world-record levels through exorbitant printing. The Bolívar is soon expected to reach 1,660 percent, and has at times been worth less than the virtual currency used in the popular video game World of Warcraft.
[pullquote]The Bolívar is…at times been worth less than the virtual currency used in the popular video game World of Warcraft.[/pullquote]
Venezuelans now face shortages of necessities from life-saving medications to bread and toilet paper. Poverty, disease, and starvation have become commonplace. Four out of five households, twice as many as in 1998, are experiencing poverty. Corruption is rampant as public funds are pocketed by the political and military elite. Simultaneously, crime is widespread and spreading. Heavily armed militias take over poor neighborhoods. Purported “Mega-Gangs” roam the streets with bazookas and grenade launchers. Caracas, the country’s capital, holds the dubious honor of being the world’s most violent city, with about 4,000 murders a year.
Meanwhile, Maduro continues to consolidate his power and crush the last vestiges of democracy. Opposition groups are in disarray as the government crushes manifestations and protests. The police killed over 120 protesters in the past three years and injured thousands more. A formerly “thriving” experiment in socialist democracy is teetering on the edge of becoming a military dictatorship.
Venezuela, through corrupt leadership and planning, has managed to turn a blessing into a curse. In responsible hands, Venezuela’s “jackpot” could have revived its economy, infrastructure, and humanitarian resources. This bonanza petrolera could have been the golden ticket to securing a prosperous future. Instead, Chávez and Maduro embraced populism, corruption, and totalitarianism, and thus doomed their country.
Daniel Smits ’21 studies in the College of Arts & Sciences. He can be reached at danielsmits@wustl.edu.