Although Hugo Chavez just died last week in Caracas, economic freedom predeceased him in Venezuela by at least a decade.
When Chavez took power in 1999, the Venezuelan economy was rated at 54 points out of 100, according to The Heritage Foundation/Wall Street Journal’s annual Index of Economic Freedom. This was good enough to land the country among the ranks of the world’s “somewhat free” economies. Today, after 14 years under Chavez, Venezuela’s economy is rated at only 36 points. The nearly 20-point plunge is the most severe recorded over that period and leaves the nation with the world’s fourth most repressed economy.
A populist who loved to present himself as a Robin Hood, Chavez solidified his power base among the nation’s poor through redistributionist programs he dubbed “Socialism for the 21st Century.” That approach has largely failed to produce any material improvement in the lives of the poor, however. In the past 12 months alone, they have suffered from recurring shortages of basic food items, a major currency devaluation, and a 26 percent inflation rate.
These policies were successful only in hollowing out the middle class and fortifying Chavez’s power base among the poor (while also leaving them worse off). Thousands packed their bags and left, disheartened by the ugly atmosphere created by Chavez’s relentless and venomous class-warfare rhetoric. Others simply had their livelihoods taken away as Chavez nationalized scores of energy, banking, and telecommunications companies. He also confiscated more than a million acres of farmland to give to the workers.
Chavez and his accomplices showed no remorse about trampling upon property rights and the rule of law—two of the cornerstones of economic freedom. Thanks to a dysfunctional judiciary, which Chavez kept firmly under his thumb, contracts are simply repealed when they become politically inconvenient. Small wonder that foreign investment has all but dried up—except from certain favored nations, such as China and Iran, which can count on Chavista-dominated courts to rule in their favor.
Chavez’s reign of cronyism and ineptitude didn’t stop there. Writing in The New York Times, Rory Carroll notes, “Bureaucratic malaise and corruption became so severe that murders tripled to nearly 20,000 a year, [and] gangs brazenly kidnapped victims.”
Corruption became so rampant throughout the Venezuelan government that it led writer Carlos Fuentes to dub Chavez a “tropical Mussolini.”
And this corruption allowed lots of money to be made in Chavez’s Venezuela. A 2012 State Department analysis reports that Venezuela became a “major drug-transit country” marked by a “weak judicial system, inconsistent international counternarcotics cooperation, generally permissive law enforcement, and a corrupt political environment.”
Chavez himself did quite well. His family’s net assets have been estimated conservatively at well over $100 million—perhaps much higher. In his personal finances, he more closely followed his Cuban mentor, Fidel Castro, than Robin Hood. Forbes estimated that, after nearly a half century of “public service,” Castro had amassed a personal fortune of close to $1 billion by 2006.
Chavez leaves his family well-provided for. But he leaves his people a far more bitter legacy. Venezuelan economist Moises Naim summed it up:
He leaves the country in a shambles.… Never has a Latin American leader wasted so much money, misspent so many resources and misused such power. Chávez could have transformed the country, but instead used those resources to build a personality cult, push a failed ideology and decimate the country’s economy.
In short, Chavez turned the nation’s blessings of abundant natural resources into a curse, throttling economic freedom along the way. He strangled the country’s middle class and transformed Venezuela into a cesspool of criminality, corruption, and inefficiency plagued by shortages and high inflation. Worse still, the divide between the haves and have-nots that propelled Chavez to power is worse than ever.
The Chavez era was also marked by mismanagement, most spectacularly at Petróleos de Venezuela, S.A. (PDVSA). Under Chavez, nepotism and populist politics replaced competence at the once-respected state oil company. As a result, Venezuela’s annual oil output has dropped by more than 20 percent to 2.5 million barrels per day, according to the International Energy Agency. The oil-rich nation today must import and ration gasoline.
Chavez diverted PDVSA’s profits—the nation’s patrimony—to support his political agenda at home and abroad.
Now, while PDVSA tries vainly to maintain production levels, it still produces huge revenues. And of the nearly $1 trillion of oil revenues generated since 1999, some estimates put the total amount skimmed by “Bolivarian” criminal groups at upwards of $100 billion.
As The Wall Street Journal’s Mary O’Grady warns us, the biggest danger for Venezuela is that Chavismo may survive Chavez as Peronismo has survived Juan Peron.
Argentina has never been able to shake Peronismo, which replaced the rule of law with governance by a troika of big labor, domestic producers, and a corrupt political class. The once-prosperous South American nation is today again ruled by a Peronist president and is sliding again into repression, inflation, and poverty.
Nevertheless, economic freedom in Venezuela has nowhere to go but up in the post-Chavez era. His party’s loyalists, even if they can maintain themselves in office, lack his powerful charisma to distract from the reality of a nation in economic and political collapse. As Chavez lies in his freshly dug grave, many Venezuelans no doubt will be hoping that the first green shoots of liberty will start to appear again in their homeland after a long drought.