Thoughts on Venezuela and the alleged association between social welfare and socialism

Every time free education and healthcare for all is mentioned in the US, the chief criticism is that the proposal will throw the country into socialism and dismay. Critics cite Venezuela as the failed example of socialism and an outcome that the US must avoid. Seeking for the truth, I decided to do a little bit research on Venezuela and what actually took place to see. My intention is to see if the criticism is well-founded. Below are my findings.

What transpired in Venezuela

Dependent on oil, Venezuela’s economy fluctuates in tandem with oil price. In the 1970s, Venezuela was one of the richest countries in the world, due to rising price of the valuable substance. In the following decade, a decline in oil price brought Venezuela to its knees. The economy contracted while inflation rose steadily, hitting its peak of 81% in 1989. In response, the government cut spending, but its effect was almost nonexistent. Half of the population lived under poverty in the latter half of the 1990s. Inflation rate was 100% in 1996. Deadly chaos saw multiple deaths.

In 1992, Hugo Chavez led a failed coup, was arrested and sent to prison for two years. After his release, he ran for the presidency in 1998, vowing to give the power back to the people of Venezuela and use oil money to re-distribute wealth in the country. He won the election in an impressive fashion and with a significant margin.

After the election, Hugo Chavez started social programs that left positive impact on healthcare, education, unemployment and poverty in the country.

Unemployment rate went down from 19.2% in 2003 to 9.3% in 2007 and 7.8% in 2009
“The most pronounced difference has been in the area of health care. In 1998 there were 1,628 primary care physicians for a population of 23.4 million. Today, there are 19,571 for a population of 27 million. In 1998 there were 417 emergency rooms, 74 rehab centers and 1,628 primary care centers compared to 721 emergency rooms, 445 rehab centers and 8,621 primary care centers (including the 6,500 “check-up points,” usually in poor neighborhoods, and that are in the process of being expanded to more comprehensive primary care centers) today. Since 2004, 399,662 people have had eye operations that restored their vision. In 1999, there were 335 HIV patients receiving antiretroviral treatment from the government, compared to 18,538 in 2006.”
Poverty rate dropped from 55.1% in 2003 to 27.5% in 2007
“Access to education has also increased substantially. For example, the number of public schools in the country has increased by 3,620 from 17,122 in the 1999/2000 school year to 20,873 in the 2004/2005 school year. By comparison, in the period between the 1994/1995 and 1998/1999 school years, the number of public schools increased by 915. School enrollment has also increased at all educational levels. For example, in the period between the 1999/2000 and 2005/2006 school years, gross enrollment rates for preschool have increased by 25 percent, for primary education by 8.3 percent, for secondary education by 45 percent and for higher education by 44 percent.”

A labor strike in 2003 at PDVSA, a stated-owned oil company responsible for the exploration, production and exportation of oil in Venezuela, severely damaged oil production and hence the economy, with GDP falling 27% during the first half of 2003. After the strike, Chavez also began a plethora of actions to concentrate his power and radicalize his agenda:

Fired highly experienced workers at the state-owned PDVSA
Eliminated term limits
Established a Supreme Court that was friendly to him
Oppressed free press
Nationalized key industries in the country
Imposed subsidies on food and consumer goods
Expropriated private companies

The country’s finance relied almost completely on export income, not taxes, dominantly made of oil export income. In 2004, oil price hit $100 and climbed higher in the years after. The hike in oil price allowed Chavez to fund his social programs, nationalization of key industries, foreign borrowing and import of, well, almost everything.

However, oil price started to decline in 2014, throwing Venezuela into chaos. Years of toxic dependence on oil and lack of proper investment in agriculture as well as manufacturing robbed the country of an ability to be self-sustained. Suddenly, the country no longer had sufficient income to finance its import of food as well as consumer goods, and its debt payment. Food and medicines became rare. Inflation went up dramatically. The economy entered a free fall. After Chavez died in 2013, Maduro took over and started his quest for dictatorship. Electoral manipulation, oppression of free speech, censorship and violation of human rights were the hallmarks of Maduro’s reign. Recently, the United States and other countries refused to recognize Maduro as the legitimate leader of Venezuela.

Definition of socialism

The freedictionary website describes socialism as follows:

(Economics) an economic theory or system in which the means of production, distribution, and exchange are ownedby the community collectively, usually through the state. It is characterized by production for use rather than profit, by equality of individual wealth, by the absence of competitive economic activity, and, usually, by government determination of investment, prices, and production levels.
(Government, Politics & Diplomacy) any of various social or political theories or movements in which the common welfare is to be achieved through the establishment of a socialist economic system

The definitions clearly point out that common welfare alone isn’t enough to label a country “socialist”. It has to come with the state-controlled means of production, distribution and exchange.

Thoughts

That is also the exact reason why the US and Venezuela can’t be more different. While the former’s economy is the epitome of a free economy in the world, the latter’s is tightly controlled by the state. Also, the US economy doesn’t have the level of dependence on oil as Venezuela does. Saying that implementation of free healthcare and education is equal to launching America into socialism ignores completely the difference in the two countries’ economic systems.

Would free social welfare lead to chaos? Advanced countries such as Western Europeans, Australia and Japan provide their citizens with free education and healthcare. Yet, those countries’ economies are anything, but similar to what Venezuela presents. Hence, the alleged association of social welfare and socialism seems ill-founded in my opinion. Instead, the fear mongering and propaganda, I believe, are driven by corporations and individuals whose interests would be in jeopardy with the implementation of free education and healthcare.

Every social system has its strengths and weaknesses. As mentioned above, Hugo Chavez managed to do some goods for his people, a fact that has been conveniently ignored by the media and politicians. Yet, socialism is flawed and the flaws in the case of Venezuela are exacerbated by a colossal failure in governance and management. There was no check on the regime that drifted into an authoritarian. Oil money wasn’t reinvested properly into agriculture and manufacturing, areas that could have made Venezuela more self-sustaining and less dependent on oil.

On the other hand, capitalism isn’t perfect either. While free markets allow for innovation, fiscal freedom and growth, it usually comes with income inequality. Take the US for instance. The top three billionaires own more than the poor half of the country combined. While many Americans don’t have $400 ready for an emergency, the US is home to 25% of the world’s billionaires and more billionaires than Germany, China and India combined.

To have a fair society and strong economy, a balanced mix of socialism and capitalism is better than a lone pursuit of either, I believe. In fact, that’s the model adopted by Western European countries. Social benefits are financed by high taxes in a free market to ensure that the less wealthy have more help and the playing field is more even. While a combination of socialism and capitalism may work in theory, the implementation is guaranteed to have many nuances, given the differences in natural resources, cultures, demographics and other factors in each country. The devil is in the details. Any claim that a social system doesn’t work because of a failed example somewhere else without thorough review of each country’s conditions is false, in my opinion. Sadly, that is usually what happens in the news.