Banking in Venezuela Requires a Backpack

Today in Venezuela the hungry locals have taken to scouring city streets for plastic garbage bags full of rubbish and emptying the contents so that they can resell the bags. Extreme poverty has spread like the plague. The garbage bag, imported with dollars, is a thing of value.

Most blame Hugo Chavez for this failure of socialism, but by the time Chávez was elected in 1999, Venezuela already had 40 years of socialism under its belt, dating back to 1958. Romulo Betancourt, an avowed socialist, was elected president that year. So Venezuela becomes a useful case study for the promises and reality of socialism. I am sourcing Mary Anastasia O’ Grady’s article which provides a great context for this study.

For 30 years a string of socialist governments employed price and exchange controls in counter productive, socialist attempts to raise living standards. Rent control in Venezuela dates to 1939. Since then, “not one apartment rental building has been built,” writes Vladimir Chelminski in his 2017 book, “Venezuelan Society Checkmated.” Mary Anastasia O’ Grady’s states: “The legendary slums that climb Caracas’s hillsides are a testament to this socialist stupidity.”

Carlos Andrés Pérez took the presidency in 1974. Perez mandated salary increases for the entire nation and implemented, for the first time, a minimum wage. All commercial buildings had to employ elevator operators, and all public restrooms had to have attendants. He forced foreigners to sell what they owned in Venezuela. He nationalized oil in 1976. The state expanded its role in iron, steel and aluminum and took control of coffee, cocoa and the previously independent central bank. Price controls applied to virtually everything, from cement, hotels and banking to parking lots, meat, milk and sugar. Socialism took its toll.

When Chávez was later inaugurated in February 1999 the Venezuelan Bolivar exchanged at 576 to the dollar. He increased the implementation of socialism and government control, worsening a long history of destroying free markets that would lead to today’s disaster. Today it takes 79,900 Bolivars to exchange for one dollar. Sadly, banking in Venezuela now requires a backpack.

Although I would say that at least some socialists are motivated by empathy and compassion for the needy, as an economic system it simply has not worked.



Venezuela’s Long Road to Ruin. Few countries have provided such a perfect example of socialist policies in practice.  Mary Anastasia O’Grady June 2018 Wall Street Journal

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