Socialism Sucks, page 3
They had to make these journeys in the first place because of Venezuela’s socialist policies, which had destroyed domestic production of basic goods and limited the availability of imports. In the early days of Chávez’s presidency, annual food imports to Venezuela averaged about $75 per person. After Chávez confiscated more than ten million acres of private farmland, food production collapsed and food imports soared. By 2012, shortly before Chávez’s death, food imports had reached an average of $370 per person each year. Today, the Venezuelan government can’t afford to subsidize food imports, so the people have to find food on the black market—or in Colombia.
Julian told us about Sabrina Martin, a reporter working on a story about new bakery regulations in Venezuela. She told him that bakeries are supposed to buy imported flour from the government (which has a monopoly on imported flour). The government, however, does not have enough flour to meet demand; government-imposed price controls make it impossible for the bakeries to turn a profit; and government regulations that require bakeries to offer bread throughout the business day mean that bakery owners have to break the law either by buying flour on the black market or by having bare shelves—and in either event they are expected to run their businesses at a loss.
We had read a similar story, in which the government confiscated millions of toys from a toy company and arrested its executives because the price of toys was allegedly too high! These stories are not uncommon in Venezuela. Sabrina interviewed Víctor Maldonado, executive director of the Chamber of Commerce, Industry, and Services of Caracas.6 Maldonado reported that in 2016 alone, more than 30,000 Venezuelan companies closed. Venezuela had 800,000 companies before Hugo Chávez came to power in 1999, but only about 230,000 remain today.
The Confederation of Farmer Associations (Fedeagro) reported that the production of rice, corn, and coffee in Venezuela has fallen by 60 percent over the last decade. Similarly, the number of beef cattle in the country has decreased by 38 percent over the past five years according to Vicente Carrillo, the former president of Venezuela’s cattle ranchers’ association.
The collapse of private businesses has forced people to rely on the government for handouts, but there is never enough to go around. People line up early in the morning to get government-rationed food and supplies, but the lines are long, the items are few, and the recipients are targets for thieves.
That brings us back to the bridges near Cúcuta, where there are no government-monopoly wholesalers, no arbitrary price controls, no limits on profits, and where markets can provide what the Venezuelan government cannot.
The stores in Colombia were well stocked. There were three or four pharmacies near the bridge selling a wide variety of medicines and supplies. Bulk food was everywhere, and pallets of bags of rice were constantly being off-loaded from trucks and into the storefronts. Phone cards, cooking oil, diapers, pre-packaged snacks, juice drinks, and many other basic goods were widely available. There were roadside stands selling food and ice cream. According to Julian, prices were cheap, even by local standards. A pound of rice went for less than a dollar.
The only thing we couldn’t find was beer. It was available for takeaway from stores, but we were looking for a place to sit and people-watch. Eventually we found a small, dusty place with a few beat-up plastic chairs that had a beer cooler. It wasn’t on one of the main shopping alleys, but it was the only option around. We grabbed a couple Bahias, which cost about thirty-three cents each.
Not only were the beers cheap, but we counted ourselves fortunate because, to Venezuelans, beer had become something of a luxury. In Venezuela, six months earlier, there was no beer at all. That’s right—they ran out of beer. Empresas Polar, the country’s largest brewer, which produces 70 to 80 percent of Venezuela’s beer, had closed all four of its breweries the previous April when they ran out of malted barley.
More accurately, the company ran out of foreign exchange necessary to buy imported barley.7 Barley isn’t grown in Venezuela’s tropical climate. In a market economy, Empresas Polar would have traded domestic currency in the foreign exchange market to buy whatever imported ingredients it needed. But Venezuela’s planners control access to foreign exchange and didn’t allocate enough to the company to import the needed barley. Yet according to the government, the problem is that Lorenzo Mendoza, Polar’s CEO, is a “thief and a traitor” trying to undermine the socialist regime.8 Meanwhile, Venezuelans went thirsty.
As horrifying as a shortage of beer sounds, it’s nowhere near the worst of Venezuela’s problems. Venezuelans aren’t just thirsty. They’re hungry. Most Venezuelans don’t have access to a market like the one we were at. As a result, according to a survey done by universities in Venezuela, three-quarters of adults had lost an average of nineteen pounds during 2016. Caritas, a Catholic humanitarian organization, found that among children under five years old, more than 11 percent suffered from moderate or severe malnutrition. The situation has only become worse since our visit. Venezuelans lost an average of twenty-four pounds in 2017.9 Venezuela’s socialist policies are literally starving the country.
Two months after our visit, the Ministry of Health released statistics showing that infant mortality rates had shot up 30 percent in 2016, and the minister who released the statistics was promptly fired. So much for Article 83 of Venezuela’s constitution, which declares: “Health is a fundamental social right and the responsibility of the State, which shall guarantee it as part of the right to life.” I guess no one told Chávez that writing down a “right” to something on a piece of paper doesn’t magically make it materialize.
But it was certainly enough to fool the Hollywood Left. When Chávez died in 2013, Sean Penn wrote, “Today the people of the United States lost a friend it never knew it had. And poor people around the world lost a champion.” Similarly, Oliver Stone, the chief idiot among the useful idiots, who produced a farce of a documentary on Chávez, Mi Amigo Hugo, that even Foreign Policy found “disgraceful,” wrote, “I mourn a great hero to the majority of his people and those who struggle throughout the world for a place.”10 The ever-obnoxious Michael Moore tweeted, “Hugo Chávez declared the oil belonged 2 the ppl. He used the oil $ 2 eliminate 75% of extreme poverty, provide free health & education 4 all. That made him dangerous.”
No, what made him dangerous—to the Venezuelan people—was that high oil prices disguised how he was destroying the country’s economy. After Venezuela became an unmistakable economic basket case, the Hollywood sycophants and lefties like Bernie Sanders suddenly went quiet. But when pressed, the useful idiots blamed Venezuela’s collapse on falling oil prices, as if it were a natural calamity that could afflict any country.
But the truth is, not only had prices fallen, so had Venezuela’s oil production. Despite sitting on the world’s largest known oil reserves, oil production was at a twenty-three-year low, because of socialism. Nationalized oil companies hadn’t maintained their pipelines and refineries, because they had no profit motive to do so.
Kevin Grier, an economist colleague of mine at Texas Tech, co-authored a cool, empirical study that compared the performance of Venezuela’s economy during the oil boom against the economies of similar, but non-socialist, countries. Guess what? Venezuela’s economy had improved, but by less than that of the other countries; in fact, Kevin says that if Venezuela had not followed socialist policies, Venezuelan incomes would have been 20 to 30 percent higher. What high oil prices had done was hide that Venezuela was falling behind its neighbors economically and just keeping pace when it came to measurements of poverty and infant mortality. Once oil prices fell, the mask was off.
So with production cratering and oil revenues drying up, where is the Venezuelan government getting its money? That’s easy. They’re running a printing press, and you don’t have to be a drunk economist to know that results in inflation. Prices are rising faster and faster every year—from over 30 percent in 2008 to as high as 1,600 percent in 2016, according to media reports. Today it is even worse. Inflation was estimated at 18,000 percent in March and April 2018 alone.11 The reality is it’s almost impossible to measure inflation properly in a country with such massive shortages and controlled prices.
Hyperinflation is one of the most destructive things a government can do to an economy. It devastates the balance sheets of banks and other lenders, and as a result, borrowing and lending grind to a halt. Virtually every house, factory, and business you’ve ever seen was created with borrowed funds, and failing banks mean no new houses, factories, or businesses. Inflation destroys savings and people’s ability to make long-term plans and turns the entire economy into an attempt to spend money as fast as possible before it loses its value.
With our last cold(ish) beer behind us, we ventured back into the melee of shoppers and asked Julian if we could trade for some Venezuelan currency. We had only a few Colombian pesos and he wasn’t sure if they’d take dollars. There were official-looking dealers in kiosks and dozens of unofficial dealers roaming the streets.
Bob walked up to one fellow with a twenty-dollar bill in hand and mimed that he’d like to change it for bolívares. The guy handed over a twelve-inch stack of hundred-bolívar notes, which was the highest denomination in circulation at the time. Bob asked if he had any smaller notes, and he laughed, dug around in his bag, and threw in a couple bundles of twenties and fifties. “¡Gratis!” he laughed.
You’d need at least a five-foot stack of bolívares to buy something worth a hundred dollars. Julian told us that they don’t even count the bills for large transactions. They just weigh them. In fact, we had noticed that some of the Venezuelans appeared to have heavy luggage coming into Colombia. It suddenly dawned on us that the incoming bags were filled with cash.
We thought about taking the nearly worthless stack of notes to a strip club in Cúcuta to “make it rain,” but decided that pissing off Colombian strippers was not very prudent. In the end, we opted to do our small bit to fight Venezuelan inflation by taking the money out of circulation and bringing the stack of bills home as souvenirs.
As we walked toward the queue of yellow taxis waiting to take the richer Venezuelans, and us, to Cúcuta, Bob asked a passerby, “¿Por qué vienes aquí?” Why are you coming here?
He looked across the bridge he’d just crossed and muttered simply, “No hay nada allí.” There is nothing there.
For much of 2017, Chávez’s successor, President Nicolás Maduro, had an approval rating that hovered between 20 and 30 percent, and anti-government protests abounded. But Maduro was reelected in 2018 amid, as the New York Times put it, “widespread disillusionment,” with “more than half of voters not casting ballots,” and critics alleging that the election was “heavily rigged.”12
This shouldn’t surprise anyone, because political freedom cannot survive without a large degree of economic freedom. In his 1944 book, The Road to Serfdom, Friedrich Hayek argued that a competitive capitalist economy is necessary to sustain democracy, and that once a country becomes “dominated by a collectivist creed, democracy will inevitably destroy itself.”13
Similarly, in 1962, Milton Friedman noted: “Historical evidence speaks with a single voice on the relation between political freedom and a free market. I know of no example in time or place of a society that has been marked by a large measure of political freedom, and that has not also used something comparable to a free market to organize the bulk of economic activity.”14
The reason is simple. Centrally planned, socialist economic systems necessarily concentrate economic power in the hands of government planners who can, through their economic edicts, punish dissent. This is exactly what has happened in Venezuela, where state employees were fired for signing a petition demanding a recall election of Maduro. In 2017 President Maduro ordered a special election for a Constituent Assembly that could rewrite the constitution and give him even greater power. While the opposition called for an electoral boycott, the government again threatened state employees to support Maduro or be fired. According to Reuters, the vice president of the state-owned oil company, Petroleos de Venezuela SA, told his employees “Any manager, superintendent, and supervisor who tries to block the Constituent Assembly, who does not vote, or whose staff does not vote, must leave his job on Monday.”15
During the 2018 presidential election, the government banned the largest opposition parties, violently repressed anti-government protests, and moved the election forward seven months to hamper challengers. Many voters went directly from the voting booth to nearby “Red Spots,” where the government checked their IDs and handed out food rations—essentially a bribe for voting.
Finally in 2019, a constitutional crisis erupted as Juan Guiadó was declared interim-president by the opposition-controlled National Assembly. He was quickly recognized by the United States and most nations in the Western Hemisphere and Europe as the legitimate leader of the country. As I write this, the Venezuelan military as well as the usual suspects (Cuba, North Korea, Nicaragua, etc.) are standing by Maduro. Guiadó’s party, while less extreme than Maduro’s, is a member of the Socialist International, so we have our doubts about whether this change will really matter.
Venezuela began its experiment with democratic socialism twenty years ago. Despite its democratic origins and a stroke of good fortune with an oil boom, socialism failed in Venezuela as it has failed everywhere else, bringing economic misery and political tyranny in its wake.
CHAPTER TWO
SUBSISTENCE SOCIALISM: CUBA
MAY 2016
Even during the period when President Obama relaxed travel rules, Americans had a hard time getting to Cuba. Under our laws, it is illegal for American tourists to visit the island; as professors, though, Bob and I are allowed to go for research purposes.
There were no commercial flights from the United States to Cuba when we traveled there in 2016, but you could get there on a charter flight.1 We booked two seats for the forty-one-minute flight from Miami to Havana for a whopping $459 each. Our commercial flights from Texas to Miami cost another couple hundred bucks apiece. A $700 fare should land you in London or Paris; instead we landed in Havana.
When we stepped off the charter plane onto the tarmac at 8:30 a.m., it felt like any place in the Caribbean—warm and humid, but not unpleasant. In fact, nothing was unpleasant at first. We proceeded through customs with minimal hassle and exchanged a thousand U.S. dollars into convertible pesos. Usually, neither of us would exchange that much at the airport, because airports offer some of the worst exchange rates you’ll find while traveling. Cuba is different. The government owns all the banks, hotels, and exchange counters and offers the same rate everywhere. You can’t find a better deal, so there’s no point trying.
Independent of its economic system, almost every country has a few nice hotels and restaurants. In government-directed economies, a disproportionate amount of money is spent on what political leaders desire—typically, great Olympic sports teams, and a few showcase hotels and restaurants to impress foreigners. In Cuba’s case, this included the opulent Hotel Nacional, reportedly one of the world’s great hotels. But we were on a mission to see what life was like inside Cuba’s socialist system. We couldn’t experience that by drinking Cuba libres at a fancy resort, but we weren’t going to sandbag it either. Neither of us is into unnecessary suffering.
Our first night was at a supposed three-star hotel on the coast in the Western suburbs of Havana, recommended by Bob’s Mexican friend José Torra. Our reservation included a shuttle from the airport, but the driver never showed up. Cabs were plentiful, so it wasn’t a big deal. We jumped into a modern, yellow, Chinese-made car with air-conditioning and paid a twenty-five-dollar fare. We didn’t know it at the time, but it was the nicest car we would get into until our wives picked us up from our respective airports a week later.
The Hotel Neptuno Tritón opened in 1979, during the heyday of Cuban-Soviet cooperation. It has two towers, each looking like a Soviet housing project, protruding some twenty stories into the sky. The towers were once gleaming white, if the poster in the hotel lobby can be believed, but thirty-seven years of diesel fuel emissions and neglect have turned them a sickly tan color. Most of the windows on the upper floors were broken.
The lobby, though not air-conditioned, was well maintained. Bob had reserved two rooms for thirty-three bucks apiece with his credit card through a British website. Thanks to the American government’s rules against American companies doing business with Cuba, American credit cards don’t work anywhere on the island. Booking with a British middleman is a work-around. Bob strode up to the registration desk and said, “Tenemos una reservacion.”
Bob’s Spanish is better than mine, which is to say he can habla poco. I picked up what little Spanish I know through traveling in Spanish-speaking countries and playing basketball with Puerto Ricans. That means I can order in restaurants and bars, demand a basketball, and express my displeasure when I don’t get it. Bob did most of the talking on this trip.
The desk clerk typed frantically on her computer while engaging Bob in an equally frantic conversation in Spanglish.
He told me, “They can’t find our reservation. She’ll contact the British company and recommends we wait in the lobby.” We opted to wait in the bar instead.
Cristal is Cuba’s lighter beer, at 4.9 percent alcohol. The other beer, Bucanero, is slightly stronger at 5.5 percent and has a bit more flavor. That’s the extent of the beer variety in Cuba. But hey, it’s better than Venezuela. At least Cuba hadn’t run out of beer, though beer shortages have occurred here as well.2
Two Cristals later, the desk clerk motioned Bob back to the counter. She could not reach the British company. Bob solved the problem the capitalist way. He paid sixty dollars cash for one room with two beds.
