Economic Overview: Venezuela, Chile, and Bolivia

Essay By Logan (Originally a YouTube Comment)

Firstly, let’s examine your claim that Venezuela is socialist. To be socialist, we’d have to assume that the government would be in control of industry, which they simply aren’t. From the 1999 rise of the “socialist” government to today, the private sector controls 71% of industry up from 65% in ‘99 (1).The industries that ARE under the control of government, primarily their massive oil industry, has been nationalized since 1976 (2) back when they were a more or less centrist nation. If nationalization of a single industry makes you socialist, almost half the world could count.

Secondly, we need to look at the Venezuelan economy over time. While their economy is obviously doing horribly right now, the “socialist” government has been in power since 1999 (3). If “socialism” was the problem here, there would likely be signs early on in their 17 year leadership. From early on, we can see a large jump in GDP growth per year under the Chavez government. With his coming to power, GDP growth jumped from roughly 1.4% per year to 3.2% per year. After the government acquired the nation’s oil industry proper, growth again jumped, this time to 4.3% per year (4). In the pre-Chavez years, GDP per capita actually contracted each year, an average of -0.8% per year. With Chavez’s rise to power, that increased to a growth of 1.4% per capita, and then to 2.5% per capita after the government gained control of the oil industry (5). Secondly, inflation rates were all over the place under the neo-liberal government prior to Chavez, yet stabilized once he was elected (4). Thirdly, unemployment dropped significantly under Chavez (12).

Additionally, nearby Bolivia has followed a similar system since 2005, where they went from being the poorest nation in Latin America to being one of the fastest growing economies in the World (13). Ecuador is also following a similar trend.

So, if most of the “socialist” years in Venezuela were good, then what happened to screw up their economy? Oil prices and over reliance are to blame here. Oil accounts for around 95% of Venezuela’s exports and for approximately 50% of the country’s GDP (14) Of course, this reliance on one commodity was an absolutely awful decision, but not an uncommon one. Venezuela has been reliant on oil since the 70’s, and to an extent understandably so. Venezuela has little besides oil in natural resources, and as a Latin American nation they lacked the industry or trade that European nations might have possessed. Upon discovering oil, this was the country’s chance to make themselves rich. With the oil came, for the first time, luxury goods available to the common citizen. It’s clear to see why they invested so much early on. However, the country proceeded to do nearly nothing to diversify. Of course, the reasoning is that investing in oil is more profitable. No government official wanted to not invest in oil because then they would be responsible for not taking advantage of that natural resource immediately and not helping the citizens as much as they could have, and few in the private sector wanted anything to do with anything not oil related for profit motives (6). They were just as over reliant under the capitalist government as they were under the pseudo-socialists, it just so happens that the biggest crash happened under the socialists, and the effects were the most visible then due to the much higher standard of living under the socialists.

I feel that that should be sufficient for a YouTube comment to defend Venezuela, now on to Chile:

Firstly, you claim that Venezuela was four times wealthier than Chile, however, I can find no evidence to support this claim. Their economies have actually been relatively similar since at least 1960 (7). While, perhaps, you meant before 1960, that hardly makes sense to me and so I didn’t bother to pursue it any further than this.

Secondly, we should examine the economy of Chile during their socialist years vs. their capitalist ones. For this purpose, we’ll look at Allende’s presidency vs Pinochet’s dictatorship. Allende was only in power for 2 years before being overthrown in the military coup, but it’s the best comparison we have in my opinion. From his coming to power in 1971 to his fall in 1973, Chilean GDP per capita rose from $1,097 to $1,624 (source: same as last source). A small number, but impressive percentages. Now, Pinochet’s extreme free market approach was in place from 1973 to 1982 (8). In this time frame, the GDP per capita rose from $1,624 to $2,103 (source: same GDP graph as last time). Not necessarily awful, but clearly not impressive. This doesn’t paint the full picture, however. While GDP rose in this time, income inequality grew rapidly. Between 1970 and 1987 (yes, I’m aware these years are slightly off from the topic at hand, however, Chile was still fairly left wing in 1970 and was still extremely right wing in 1987 and these were the only stats I could find so please cut me some slack) the portion of the population considered to be impoverished grew from 20% to 44.4% (9). In this same time frame, Chileans with inadequate housing rose from 27% to 40% (9). Since the early 2000’s Chile’s economy has boomed, growing from $4,566 to $13,388 in the years of 2002-2015 (source: the GDP graph from earlier). This period of growth dwarfs anything Chile had experienced in their past, both in percentage and in number. In the year 2000, progressive president Ricardo Lagos was elected to power where he stayed in office until 2006 where he was succeeded by socialist Michelle Bachelet who was in office from 2006 to 2010. From 2010 to 2013, conservative Sebastian Pinera was president. He was replaced in 2013 by Michelle Bachelet in her successful rerun for office (10). It should be noted that, since Bachelet’s return to the presidency, Chile’s economy has experienced some contractions, however, 2 years of economic recession under a socialist does not mar the 10 years of leftist government from 2000-2010, and the economy is expected to have grown in 2016 (official figures aren’t available yet) and is expected to grow in 2017 (11).

Before it’s pointed out, yes, Chile’s chief export is copper. Copper prices rose steadily from 2004 to 2008, before plummeting in 2009 and rising rapidly until 2013 where prices have fallen (15). This closely matches the economic patterns of Chile, and since it’s their primary export that makes sense. However, Chilean GDP rose rapidly starting in 2002 under the progressive government, two years before the copper boom. Copper prices can not account for this. Secondly, the socialist government handled the crash in 2009 well, keeping GDP on the rise up and through the transfer of power to the conservatives. The conservatives kept GPD rising, although to a smaller degree than what was experienced under the progressives and the socialists. Since the socialists have come back to power, copper prices have halved. Unfortunately, neither the Chilean market or the socialists were well prepared for it. Unlike the 2009 crash, this was a slow, steady decline. There was no crisis, just slow bleeding. No one payed enough attention to it until it was already a problem and too late. Similar to how Venezuela is overly reliant on oil, Chile is reliant upon copper (16). Hopefully Chile will learn from the Venezuelan mistake and their economy improves like economists anticipate.

I hope this has done some to clarify the issues of Venezuela and the history of Chile.

References:

  1. http://www.aporrea.org/actualidad/a165136.html
  2. https://en.wikipedia.org/wiki/History_of_the_Venezuelan_oil_industry
  3. https://en.wikipedia.org/wiki/Hugo_Ch%C3%A1vez#First_presidential_term:_2_February_1999_.E2.80.93_10_January_2001
  4. http://cepr.net/blogs/the-americas-blog/venezuelan-economic-and-social-performance-under-hugo-chavez-in-graphs
  5. https://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&met_y=ny_gdp_pcap_cd&idim=country:VEN:COL:BRA&hl=en&dl=en and http://cepr.net/blogs/the-americas-blog/venezuelan-economic-and-social-performance-under-hugo-chavez-in-graphs
  6. http://www.economicshelp.org/blog/13071/economics/venezuela-economy-and-oil-dependency/
  7. https://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&met_y=ny_gdp_pcap_cd&idim=country:CHL:ARG:BRA&hl=en&dl=en#!ctype=l&strail=false&bcs=d&nselm=h&met_y=ny_gdp_pcap_cd&scale_y=lin&ind_y=false&rdim=region&idim=country:CHL:VEN&ifdim=region&hl=en_US&dl=en&ind=false
  8. https://en.wikipedia.org/wiki/Military_dictatorship_of_Chile_(1973%E2%80%9390)#1973.E2.80.9381
  9. http://michael-hudson.com/2003/10/chiles-failed-economic-laboratory/
  10. https://en.wikipedia.org/wiki/President_of_Chile
  11. http://www.focus-economics.com/countries/chile
  12. http://www.telesurtv.net/english/news/Venezuela-Unemployment-Rate-Drops-Nearing-Historic-Low-20151201-0038.html
  13. http://www.telesurtv.net/english/news/Bolivias-Evo-Morales-Says-Economy-Will-Keep-Growing-in-2017-20161222-0023.html
  14. http://www.opec.org/opec_web/en/about_us/171.htm
  15. http://www.infomine.com/investment/metal-prices/copper/all/
  16. http://blogs.wsj.com/economics/2013/05/06/chiles-copper-dependence-casts-shadow-over-its-economy/
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