Tag Archives: Venezuela

How a small, poor country became the top economy in Latin America

South America Map
South America Map

One way to learn about whether specific economic policies work or not is to look at different countries that have tried them. Believe it or not, patterns do emerge about what works and what doesn’t work, as you look across different times and places. I’ve been reading a book called “Money, Greed and God” with my friend Carla, which talks about what has worked to reduce poverty.

The author basically outlined two approaches. In the first approach, the government 1) confiscates the wealth of the most productive workers, 2) nationalizes (takes control of) the businesses of the most successful entrepreneurs, 3) restricts trading between citizens and with other countries, with minimum wage, price controls and tariffs. In the second approach, the government does the opposite: 1) lowers taxes on the most productive workers, and 2) lets entrepreneurs compete to provide goods and services to consumers, and 3) lowers restrictions on internal trading and trading with other countries, e.g. – eliminating minimum wage, tariffs and price controls.

Let’s take a look at two Latin American countries that went in opposite directions. Venezuela and Chile. Then we can finally find out which policies actually achieve results for the people.

Here is how Chile started out in 1973.

PROBLEM: Price controls and tariffs:

Prices for the majority of basic goods were fixed by the government in 1973. Even though Chile was and still is a small economy, the level of protection­ism was high. By the end of 1973, the nominal average tariff for imports was 105 percent, with a maximum of 750 percent. Non-tariff barriers also impeded the import of more than 3,000 out of 5,125 registered goods. Just as economic theory predicts, large queues in front of stores were usual in Santiago and other cities in Chile as a result of the scarcity caused by price controls.

PROBLEM: Government taking over private businesses:

The decline in GDP during 1973 reflected a shrinking productive sector in which the main assets were gradually falling under government control or ownership through expropriations and other government interventions in the economy.

PROBLEM: Deficit spending and government printing money:

The fiscal situation was chaotic. The deficit reached 55 percent of expenditures and 20 percent of GDP and was the main cause of inflation because the Central Bank was issuing money to finance the government deficit.

SOLUTION: lower or eliminate restrictions on trade:

The most important economic reform in Chile was to open trade, primarily through a flat, low tar­iff on imports. Much of the credit for Chilean eco­nomic reforms in the following 30 years should be given to the decision to open our economy to the rest of the world. The strength of Chilean firms, productive sectors, and institutions grew up thanks to that fundamental change.

SOLUTION: let competing entrepreneurs in the private sector provide goods and services to consumers:

A second fundamental reform was to allow the private sector to recover, adding dynamism to the economy. In fact, important sectors such as elec­tricity generation and distribution and telecommu­nications were still managed by state companies. After we implemented a massive privatization plan that included more than 50,000 new direct share­holders and several million indirect (through pen­sion funds) shareholders, these companies were managed by private entrepreneurs that carried out important expansion plans.

SOLUTION: let people take responsibility for their own lives instead of depending on government:

The 1981 reform of the Chilean pension fund system deserves special mention. Under the leader­ship of Minister José Piñera, an individual capitali­zation account program was designed with specific contributions, administered by private institutions selected by the workers. The Chilean Administra­doras de Fondos de Pension (Pension Fund Administrators or AFP) has been replicated in more than 20 countries, and more than 100 million workers in different parts of the world use these accounts to save for retirement.

SOLUTION: allow parents to choose the school that fits their needs from competing education providers, and push school administration down from the federal government to the municipal level, where it would be more responsive to voter’s needs:

In 1981, Chile introduced a universal educational voucher system for students in both its elementary and secondary schools. At the same time, the central government transferred the administration of public schools to municipal governments…  The financial value of the voucher did not depend on family income.

RESULTS: And I was able to find a nice short, description of how all that worked out for them on the far-left Wikipedia, of all places:

The economy of Chile is a high-income economy as ranked by the World Bank, and is considered one of South America’s most stable and prosperous nations, leading Latin American nations in competitiveness, income per capita, globalization, economic freedom, and low perception of corruption.

In 2006, Chile became the country with the highest nominal GDP per capita in Latin America. In May 2010 Chile became the first South American country to join the OECD. Tax revenues, all together 20.2% of GDP in 2013, were the second lowest among the 34 OECD countries, and the lowest in 2010. In 2017, only 0.7% of the population lived on less than US$1.90 a day.

According to the Heritage Foundation, Chile is ranked as the 18th freest economy in the world. The World Bank ranked Chile as the 50th highest GDP per capita for 2018, just below Hungary and above Poland.

Now, you can contrast those results with Venezuela. I have been blogging about Venezuela for years on this blog, and documenting how they raised taxes, banned guns, nationalized private sector companies, raised tariffs, and increased regulations. They are now ranked JUST ABOVE NORTH KOREA for economic freedom – #179 out of 180 countries measured. Basically, they did the opposite of everything that Chile did – transferring power away from parents, workers, business owners, churches and municipal governments to the powerful centralized federal government.

Wikipedia explains how Hugo Chavez took over in 1999 and enacted a communist revolution.

More:

Since the Bolivarian Revolution half-dismantled its PDVSA oil giant corporation in 2002 by firing most of its 20,000-strong dissident professional human capital and imposed stringent currency controls in 2003 in an attempt to prevent capital flight, there has been a steady decline in oil production and exports. Further yet, price controls, expropriation of numerous farmlands and various industries, among other government authoritarian policies… have resulted in severe shortages in Venezuela and steep price rises of all common goods, including food, water, household products, spare parts, tools and medical supplies; forcing many manufacturers to either cut production or close down, with many ultimately abandoning the country as has been the case with several technological firms and most automobile makers.

They confiscated private property, took over private sector businesses, implemented tariffs and price controls, redistributed wealth via massive welfare programs, and pushed all decision-making out of families and municipal governments up to the federal government. By depriving the producers of their earnings, the country caused massive shortages of goods and services, to the point where people are fleeing the country, consuming zoo animals, and selling their bodies as prostitutes in order to get food and water.

Application

In the next election, we are not picking a tribe because of how they make us feel about ourselves. We are not choosing in order to see ourselves as “nice” and “not nice”. We need to look at specific policies being proposed, and see what works and what doesn’t work. The examples of Chile (rags-to-riches) and Venezuela (riches-to-rags) are helpful for voters who want to get RESULTS instead of FEELINGS.

I’ll leave you with a list of links from previous posts so you can see how communism worked out for Venezuela.

Related posts

How a small third world country became the top economy in Latin America

South America Map
South America Map

So, I’ve been watching the Democrat debates, and I’ve noticed that all of their candidates are proposing economic policies that they say will improve the lives of Americans. But have the candidates ever been able to try out these policies, and proven that they work? One way to evaluate policies is to look at other countries that have tried them, to see if those policies are proven to work.

I’ve been reading a book called “Money, Greed and God” with my friend Carla, which talks about what does and does not work to alleviate poverty. The author basically outlined two approaches. In the first approach, the government 1) confiscates the wealth of the most productive workers, 2) nationalizes (takes control of) the businesses of the most successful entrepreneurs, 3) restricts trading between citizens and with other countries, with minimum wage, price controls and tariffs. In the second approach, the government does the opposite: 1) lowers taxes on the most productive workers, and 2) lets entrepreneurs compete to provide goods and services to consumers, and 3) lowers restrictions on internal trading and trading with other countries, e.g. – eliminating minimum wage, tariffs and price controls.

Let’s take a look at two Latin American countries that went in opposite directions. Venezuela and Chile. Then we can finally find out which policies actually achieve results for the people.

Here is how Chile started out in 1973.

PROBLEM: Price controls and tariffs:

Prices for the majority of basic goods were fixed by the government in 1973. Even though Chile was and still is a small economy, the level of protection­ism was high. By the end of 1973, the nominal average tariff for imports was 105 percent, with a maximum of 750 percent. Non-tariff barriers also impeded the import of more than 3,000 out of 5,125 registered goods. Just as economic theory predicts, large queues in front of stores were usual in Santiago and other cities in Chile as a result of the scarcity caused by price controls.

PROBLEM: Government taking over private businesses:

The decline in GDP during 1973 reflected a shrinking productive sector in which the main assets were gradually falling under government control or ownership through expropriations and other government interventions in the economy.

PROBLEM: Deficit spending and government printing money:

The fiscal situation was chaotic. The deficit reached 55 percent of expenditures and 20 percent of GDP and was the main cause of inflation because the Central Bank was issuing money to finance the government deficit.

SOLUTION: lower or eliminate restrictions on trade:

The most important economic reform in Chile was to open trade, primarily through a flat, low tar­iff on imports. Much of the credit for Chilean eco­nomic reforms in the following 30 years should be given to the decision to open our economy to the rest of the world. The strength of Chilean firms, productive sectors, and institutions grew up thanks to that fundamental change.

SOLUTION: let competing entrepreneurs in the private sector provide goods and services to consumers:

A second fundamental reform was to allow the private sector to recover, adding dynamism to the economy. In fact, important sectors such as elec­tricity generation and distribution and telecommu­nications were still managed by state companies. After we implemented a massive privatization plan that included more than 50,000 new direct share­holders and several million indirect (through pen­sion funds) shareholders, these companies were managed by private entrepreneurs that carried out important expansion plans.

SOLUTION: let people take responsibility for their own lives instead of depending on government:

The 1981 reform of the Chilean pension fund system deserves special mention. Under the leader­ship of Minister José Piñera, an individual capitali­zation account program was designed with specific contributions, administered by private institutions selected by the workers. The Chilean Administra­doras de Fondos de Pension (Pension Fund Administrators or AFP) has been replicated in more than 20 countries, and more than 100 million workers in different parts of the world use these accounts to save for retirement.

SOLUTION: allow parents to choose the school that fits their needs from competing education providers, and push school administration down from the federal government to the municipal level, where it would be more responsive to voter’s needs:

In 1981, Chile introduced a universal educational voucher system for students in both its elementary and secondary schools. At the same time, the central government transferred the administration of public schools to municipal governments…  The financial value of the voucher did not depend on family income.

RESULTS: And I was able to find a nice short, description of how all that worked out for them on the far-left Wikipedia, of all places:

The economy of Chile is a high-income economy as ranked by the World Bank, and is considered one of South America’s most stable and prosperous nations, leading Latin American nations in competitiveness, income per capita, globalization, economic freedom, and low perception of corruption.

In 2006, Chile became the country with the highest nominal GDP per capita in Latin America. In May 2010 Chile became the first South American country to join the OECD. Tax revenues, all together 20.2% of GDP in 2013, were the second lowest among the 34 OECD countries, and the lowest in 2010. In 2017, only 0.7% of the population lived on less than US$1.90 a day.

According to the Heritage Foundation, Chile is ranked as the 18th freest economy in the world. The World Bank ranked Chile as the 50th highest GDP per capita for 2018, just below Hungary and above Poland.

Now, you can contrast those results with Venezuela. I have been blogging about Venezuela for years on this blog, and documenting how they raised taxes, banned guns, nationalized private sector companies, raised tariffs, and increased regulations. They are now ranked JUST ABOVE NORTH KOREA for economic freedom – #179 out of 180 countries measured. Basically, they did the opposite of everything that Chile did – transferring power away from parents, workers, business owners, churches and municipal governments to the powerful centralized federal government.

Wikipedia explains how Hugo Chavez took over in 1999 and enacted a communist revolution.

More:

Since the Bolivarian Revolution half-dismantled its PDVSA oil giant corporation in 2002 by firing most of its 20,000-strong dissident professional human capital and imposed stringent currency controls in 2003 in an attempt to prevent capital flight, there has been a steady decline in oil production and exports. Further yet, price controls, expropriation of numerous farmlands and various industries, among other government authoritarian policies… have resulted in severe shortages in Venezuela and steep price rises of all common goods, including food, water, household products, spare parts, tools and medical supplies; forcing many manufacturers to either cut production or close down, with many ultimately abandoning the country as has been the case with several technological firms and most automobile makers.

They confiscated private property, took over private sector businesses, implemented tariffs and price controls, redistributed wealth via massive welfare programs, and pushed all decision-making out of families and municipal governments up to the federal government. By depriving the producers of their earnings, the country caused massive shortages of goods and services, to the point where people are fleeing the country, consuming zoo animals, and selling their bodies as prostitutes in order to get food and water.

Application

In the next election, we are not picking a tribe because of how they make us feel about ourselves. We are not choosing in order to see ourselves as “nice” and “not nice”. We need to look at specific policies being proposed, and see what works and what doesn’t work. The examples of Chile (rags-to-riches) and Venezuela (riches-to-rags) are helpful for voters who want to get RESULTS instead of FEELINGS.

I’ll leave you with a list of links from previous posts so you can see how communism worked out for Venezuela.

Related posts

 

Before socialists in Venezuela could run over protesters, they had to ban gun ownership

Three socialist fools: Barack Obama, Nicolas Maduro, Hugo Chavez
Three socialist fools: Barack Obama, Nicolas Maduro, Hugo Chavez

I watched a very sad video from Venezuela, where the socialists who ran the country into the ground are trying to hold onto power by using violence against the people. I feel that it is important for people who were cheering for socialism in Venezuela to see for themselves what happens after socialists take power.

Here is the video:

How can the government have such little respect for the people that they were elected to serve? Answer: they can do that because they don’t think that the people can do anything about it.

Fox News explains:

As Venezuela continues to crumble under the socialist dictatorship of President Nicolas Maduro, some are expressing words of warning – and resentment – against a six-year-old gun control bill that stripped citizens of their weapons.

“Guns would have served as a vital pillar to remaining a free people, or at least able to put up a fight,” Javier Vanegas, 28, a Venezuelan teacher of English now exiled in Ecuador, told Fox News. “The government security forces, at the beginning of this debacle, knew they had no real opposition to their force. Once things were this bad, it was a clear declaration of war against an unarmed population.”

Under the direction of then-President Hugo Chavez, the Venezuelan National Assembly in 2012 enacted the “Control of Arms, Munitions and Disarmament Law,” with the explicit aim to “disarm all citizens.” The law took effect in 2013, with only minimal pushback from some pro-democracy opposition figures, banned the legal commercial sale of guns and munitions to all – except government entities.

Chavez initially ran a months-long amnesty program encouraging Venezuelans to trade their arms for electrical goods. That year, there were only 37 recorded voluntary gun surrenders, while the majority of seizures – more than 12,500 – were by force.

In 2014, with Nicolás Maduro at the helm following Chavez’s death but carrying through his socialist “Chavista” policies, the government invested more than $47 million enforcing the gun ban – which has since included grandiose displays of public weapons demolitions in the town square.

[…]The punishment for illicit carrying or selling a weapon now is 20 years behind bars.

I have this big quote there so that people can sort of get the picture of how socialists work. The socialists never come right out and say that they’re going to confiscate all the guns so they can run you over with an armored vehicle. They start with “gun surrender” programs, where people turn in their guns for nothing. Then they do “gun buyback” programs, where they give you back some of the money that you paid them in taxes in order to get your guns. It’s only later when they feel safe that they go door to door with armed men and confiscare the rest of the guns. At that point, there is nothing that you can do to them when they seize all the water, food, electricity, etc. for themselves. And that’s what happened in Venezuela: the rich socialist politicians have everything, the people who voted for them have nothing.

Ben Shapiro wrote about the how the socialists destroyed the Venezuelan economy in The Daily Wire from 2017.

Excerpt:

On Tuesday, Maduro dragged opposition leaders Leopoldo Lopez and Antonio Ledezma off to prison; on Sunday, the dictatorship killed some ten people during election riots.

[…]Maduro is, of course, the successor to thug dictator Hugo Chavez, who seized power in January 1999 through election, and then proceeded to nationalize foreign oil projects, socialize virtually every other industry, institute price and wage controls, ratchet up tariffs, and entirely destroy the economy of one of the most natural-resources-blessed countries on the planet. Chavez took office with promises to end income inequality in the country. Instead, his brutish regime exacerbated poverty to the point of crisis – but at least they minimized income inequality! Just for good measure, Chavez also essentially destroyed the free press and made employment in key industries contingent on loyalty to his regime.

The consequences: no bread, no sugar, no toilet paper, ordinary citizens hunting dogs in the streets and waiting in line outside bakers not for bread, but for the ability to comb through the garbage for crumbs. Hyperinflation has set in: according to CNBC, “On Friday, $1 equaled 10,389 bolivars. Earlier this week, on Monday, it was worth 8,820 bolivars. At the start of this year, $1 equaled 3,164 bolivars, according to the unofficial exchange rate calculated by dolartoday.com, which millions of Venezuelans use.” Venezuelan hospitals lack gloves, soap, water, paper. Electrical blackouts aren’t infrequent. Caracas has become the most violent city in the Western hemisphere.

And what did all this nationalizing of industry and redistribution of wealth from productive people to non-productive people achieve?

The Daily Wire reports:

A Fox News report from journalist Hollie McKay exposed the socialism-induced horror show on the trail from Venezuela to neighboring Colombia. “Thousands upon thousands of Venezuelans pour into Colombia over the crowd cross-country bridge, their faces gaunt, carrying little more than a backpack. Rail-thin women cradle their tiny babies, and beg along the trash-strewn gutters. Teens hawk everything from cigarettes to sweets and water for small change,” McKay reports.

Malnourished girls and women are selling anything they can, including their bodies, breast milk, and hair, to survive, reports McKay. Females as young as 14 are receiving a reported seven dollars on average “per service”; a woman’s hair might be sold in exchange for a measly $10-30.

And as desperate Venezuelans hand over their papers and identification to “pimp types,” sex trafficking has become the norm. Men are selling themselves, too: straight men, some being trafficked, are performing gay sex acts in exchange for money.

[…]Last year, The Daily Beast reported that starving Venezuelans had resorted to killing pets and zoo animals for food while dictator Nicolas Maduro and his fellow chubby elites maintained access to everything they need. 

[…]Back in Venezuela, suicide is up, particularly with children and teens, health care is basically nonexistent since an estimated 55% of the nation’s medical professionals have fled the country, and at least 70% of the population are estimated to be suffering from acute malnutrition and starvation.

Venezuela elected a socialist who had zero achievements at pleasing customers. He had no experience helping people to get jobs. He had no demonstrated ability at producing more doctors, more nurses, etc. All he had was the promise that he would take from the wealthy, and give to the poor.  And now we know the result of that rhetoric for the stupid, economically-illiterate people who voted for appearances, words and feelings, instead of concrete achievements.

If you vote because someone makes you feel that your own problems are someone else’s fault, you will lose.

Related posts