Socialism's Shortages

Lefties love Venezuela in part because dictator-supporter and President Hugo Chavez hates America. But progressives also like the country's anti-capitalist and green rhetoric.

Few on the left notice that Venezuela's system (founded on authoritarianism and expropriation) has failed, much less understand why. The explanation? As reported in the April 29th Washington Post, it's the socialism, stupid:

[A] punishing, months-old energy crisis and years of state interventions in the economy are taking a brutal toll on private business. The result is that the economy is flickering and going dark, too, challenging Venezuela's mercurial leader, Hugo Chávez, and his socialist experiment like never before.

No matter that Venezuela is one of the world's great oil powers -- among the top five providers of crude to the United States. Economists say Venezuela is gripped by an economic crisis that has no easy or fast solution, even if sluggish oil production were ramped up and profligate state spending were cut.

"The government is paralyzed, unable to handle the situation -- and there are no fiscal plans to deal with the crisis," said José Guerra, a former Central Bank economist who directs the economics department at Central University in Caracas, the capital. "Our situation is unbelievable, because we have one of the biggest reserves of oil in the world, thermal-electrical and hydroelectric sources."

Chávez still hails what he calls his "21st-century socialism" as the answer to the American-style capitalism he calls an abject failure. But through his long tenure, the Venezuelan economy has expanded by an average of less than 3 percent a year, even as the price of oil hit a historic high of $150 a barrel in 2008.

Last year, the economy slid 3.3 percent. Some economists, including Guerra, predict a 5 percent contraction this year. The International Monetary Fund says the economy will probably shrink 2 percent.

Venezuela's performance stands in stark contrast to the rest of Latin America, where some central banks worry about overheating economies in 2010. In Peru, Chile and Brazil, all of which embrace globalization, growth could indeed go well beyond 4 percent, the IMF says. Venezuela, economists say, stands out -- its economic policies marked by the nationalization of industries and stringent currency controls.

"The reason Venezuela is contracting is because private activity is contracting," Augusto de la Torre, the World Bank's chief economist for Latin America, said in Washington last week. "What we're seeing in Venezuela is a phenomenon where productivity, private activity and private business is falling."

The oil industry is pumping 20 percent less crude than in the 1990s and is saddled with debt. The country's inflation rate could hit 35 percent this year, economists say. Thousands of factories, paralyzed by a failure to access money or spare parts, have closed since 1999, said Carlos Larrazábal, president of Coindustria, which represents manufacturing nationwide. . .

To save energy, the government has imposed rolling blackouts in major cities since Jan. 13. In some cities, the blackouts can last four hours or more a day.

"They failed to do everything," said Nelson Hernández, a professor of energy policy at the Metropolitan University in Caracas. "If you do not develop your infrastructure -- your hydroelectric generation, your electrical generation -- you're going to have a collapse."

The government has tried to ease the crisis by imposing fines on companies that use too much electricity and by "bombing" clouds to induce rainfall. Chávez also tapped his closest ally, Cuba, for help, bringing in Ramiro Valdés, a 77-year-old former rebel, to advise Venezuelan energy officials.

But Cuba has suffered through serious blackouts for a generation, and Venezuela has made little headway, even as the rains returned in recent days.

Seeking economic advice from Cuba may be the definition of insanity. Nearly as crazy is the reporter overlooking that increased private enterprise is the solution.

But before giving thanks that there isn't here, I note Obama's tepid support of opposition to despots in Venezuela and elsewhere abroad. And the proposed cap-and-trade policy would similarly penalize economic activity, with similar results. As Neo-Neocon says, "It is particularly ironic that, as the failure of socialism is increasingly revealed, our own country is sliding into it."