Economic Analysis of Venezuela

Essay By Ben Bollinger

I wanted to write this short article giving an economic and political analysis of Venezuela from a leftist’s point of view and see if Venezuela’s current economic state can be linked with the “socialist” rule of Hugo Chavez, so let’s begin:

First of all Venezuela is not a socialist state, it simply being controlled by the United Socialist Party of Venezuela does not mean that the country itself is socialist. A truly socialist state would be actively moving towards handing the means of production over to the workers and collectivizing private industries; but Venezuela is not doing this, and in fact 71% of their industries are controlled by the private sector, which is actually an increase from the 1990s (17). However this is all semantics, so to avoid being accused of a no true Scotsman fallacy, let’s address the question of whether or not it was “socialist” policies in Venezuela that caused their economy to tank, shall we?

So let’s take a look into the political and economic history of Venezuela. Maintained by a strong oil sector in the 1960s and 1970s, Venezuela’s government was able to create social prosperity by spending fairly large amounts on public programs including health care, education, transport, and food subsidies. Literacy and welfare programs benefited tremendously from these conditions. (1) Venezuelans were also free to enjoy the highest wages in Latin America due to the wealth produced by their booming oil industry (2) However, when the world oil prices fell in the 1980s the economy went downhill and inflation levels rose, remaining between 6 and 12% from 1982 to 1986, (3) (4) The inflation rate peaked in 1989 at 84%, (4) the year the capital city of Caracas suffered from rioting during the Caracazo following the cut of government spending and the opening of markets by President Carlos Andrés Pérez. After Pérez initiated such liberal economic policies and made Venezuelan markets slightly more free, Venezuela’s GDP did slightly increase from the crash (keep in mind that after an economic crash as serious as the one in the Venezuelan oil crash, there was bound to be a recovery anyways and there is no significant evidence suggesting a direct connection between liberal policy and economic growth), though wages remained low and unemployment was high among Venezuelans (5)

Many people would like to blame Venezuela’s “socialist” policies for the economic crashing that occurred, however it is clear that the real culprit of the troubles was the country’s over-reliance on the oil industry; and it can even be argued that some of the more market oriented policies within the industry made the problem worse (6). By the mid-1990s under President Rafael Caldera, the country saw annual inflation rates of 50-60% from 1993 to 1997 with an exceptional peak in 1996 at 99.88%. (4) The number of people living in poverty rose from 36% in 1984 to 66% in 1995 (7) with Venezuela suffering a terrible banking crisis, which was caused by a lack of regulation and government oversight in the banking industry (8). In 1998, the economic crisis had grown even worse. Per capita GDP was at the same level as 1963 (after adjusting 1963 dollar to 1998 value), down a third from its 1978 peak; and the purchasing power of the average salary was a third of its 1978 level. (9).

Hugo Chavez was elected President and took office in 1999. In 2000, oil prices soared, giving the Chavez administration funds not seen since Venezuela’s economic collapse since the 1980s. (10) Chavez then used economic policies that have been described as “socialist”, using populist approaches with oil funds that made Venezuela’s economy dependent on high oil prices. In the first 4 years of Chávez in office, the economy grew from 1999–2001, then contracted from 2001–2003 to GDP levels similar to 1997, firstly because of low oil prices, then because of the destruction caused by the 2002 coup attempt and the 2002–2003 business strike. Other factors in the decline were a decline of capital from the country, and a reluctance of foreign aid to invest due to the previous economic disaster that had happened in the country under the rule of market-oriented policy. Gross Domestic Product was 50.0 trillion bolivares in 1998. At the bottom of the recession in 2003 it was 42.4 trillion bolivares. (11) However, with a calmer political situation in 2004, GDP came back to 50.1 trillion bolivares, and surged to 66.1 trillion bolivares in 2007. (12).

As we can see, the so called “socialist policies” of Hugo Chavez mostly improved the Venezuelan economy with his large social spending which paved the way for Venezuelans aged 15 and older, 95.2% to read and write, with Venezuela having one of the highest literacy rates in the region,(13). The poverty rate fell from 48.6% in 1999 to 32.1% in 2013, according to the Venezuelan government’s National Statistics Institute (INE) (14), also the quality of life for Venezuelans had also improved according to a UN Index (15). So the economic crisis happening currently is not his fault, however what did cause this was the same thing that caused a recession from 2001-2003, and that is a decline in world oil prices; which is one of Venezuela’s largest exports (16). No matter who would’ve been in power, there was going to be an economic collapse; however it would probably best for a Socialist Party to be in power because looking at the inflation history of Venezuela, we can clearly see that when the left has been in leadership of the country, inflation has been much more stable, which is something that is needed in these times of economic crisis:


  1. McCaughan, Michael. The Battle of Venezuela. New York: Seven Stories Press. 2005. p. 63.
  2. McCaughan, Michael. The Battle of Venezuela. London: Latin America Bureau. 2004. p. 31.
  3. Heritage, Andrew (December 2002). Financial Times World Desk Reference. Dorling Kindersley. pp. 618–21. ISBN 9780789488053.
  4. “Venezuela Inflation rate (consumer prices)”. Indexmundi. 2010. Retrieved 16 August 2010.
  5. Branford, Sue (5 February 1992). “Hugo Chavez fails to overthrow Venezuela’s government”. The Guardian. Retrieved 7 February 2016.
  6. Corrales, Javier; Penfold, Michael (2 April 2015). Dragon in the Tropics: The Legacy of Hugo Chávez. Brookings Institution Press. p. 5. ISBN 0815725930.
  7. McCaughan 2004, p. 32.
  8. Molano, 1997. Financial reverberations: the Latin American banking system during the mid-1990s. SBC Warburg Working Paper, Social Science Research Network (1997)
  9. Kelly, Janet, and Palma, Pedro (2006), “The Syndrome of Economic Decline and the Quest for Change”
  10. Heritage, Andrew (December 2002). Financial Times World Desk Reference. Dorling Kindersley. pp. 618–21. ISBN 9780789488053
  11. (United Nations data, National accounts estimates of main aggregates. Archived 11 August 2015 at the Wayback Machine.
  12. Weisbrot and Sandoval, 2008. Sections: ‘Executive Summary,’ and ‘Social Spending, Poverty, and Employment.’
  13. UNESCO, Education in Venezuela (Bolivarian Republic of)
  14. “”. Instituto Nacional de Estadística. Retrieved 20 January 2016.
  15. Charlie Devereux & Raymond Colitt. March 7, 2013. “Venezuelans’ Quality of Life Improved in UN Index Under Chavez”. Bloomberg L.P. Archived from the original on 7 November 2014. Retrieved 7 March 2013.

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