In the 1970s, Venezuela had the highest growth rate and lowest inequality in Latin America. Thanks to an oil bonanza, the government was able to spend more money (in absolute terms) from 1974 to 1979 than in its entire independent history. Indeed, during this time, this Gran Venezuela had the highest per capita GDP in region.

Scotch whiskey consumption was the highest in the world, the middle class drove Cadillacs and Buicks, and the free-spending upper class jetted off on shopping sprees to Miami, where they were known as “dame dos” (“give me two”). Politically, the country was one of only three democracies in Latin America in 1977, along with Costa Rica and Colombia.

Aerial view of Plaza Venezuela in Caracas, Venezuela in 2010.

But Venezuela is now deeply mired in political, economic, and humanitarian crises.

The nation’s economy contracted an estimated 18.6 percent in 2016, and is expected to shrink between 4.3 and 6 percent further in 2017. The 2016 inflation rate was estimated at 290 to 800 percent, and in December 2016 the country became the seventh in Latin American history to experience hyperinflation. Despite the government’s best efforts to continue payments, a crippling debt default also appears likely in 2017.

The human costs of the crisis have been dire, with food and medicine shortagessoaring infant mortality, and one of the world’s highest violent crime rates.

Venezuelan inflation rates from 1980 to 2015.

Massive queues for scarce goods like toilet paper, milk, cooking oil, butter, and corn flour (for the country’s ubiquitous arepas) have given rise to professional line standers who are paid to wait on behalf of others, digital apps to help citizens find scarce items, and stories like women giving birth in line or placid observers holding their places while witnessing a murder.

Three-quarters of Venezuelans have lost about 19 pounds of body weight in the last year on what people are calling “the Maduro Diet,” a scathing reference to current president Nicolás Maduro.

Protestors demonstrating while people seeking to buy basic goods in short supply line up outside a store in 2015.

Public health is just as bad. As hospitals have run out of imported antibiotics, surgical supplies and spare parts for medical equipment, infant mortality rose 30 percent, maternal mortality 65 percent, and malaria 76 percent in 2016. Diphtheria, once thought eradicated, has made a comeback.

By some estimates, 2.5 million people have left the country since 1999 and Venezuela now leads U.S. asylum requests. On par with these devastating developments, the country has slipped from a hybrid regime—a type of political system that combines democratic traits with autocratic ones—into pure authoritarianism. The government postponed regional elections and suspended an opposition-driven presidential recall referendum against Maduro in October 2016.

Maduro has since tried attempted to dissolve the National Assembly, provoking international opprobrium, massive demonstrations, and condemnation from members of his own party. Some analysts fear the country may be on the brink of civil war.

Toilet paper is one of the basic necessities Venezuela has had a shortage of in recent years. This sign from 2014 limits customers to only three packages of toilet paper per person (left). The murder rate in Venezuela from 1998 to 2016 according to three different agencies (right).

What are the roots of this extraordinary economic and democratic decay?

To begin, Venezuela suffers from the resource curse, where instead of aiding development, the country’s ample mineral wealth actually undermined constructive economic and social development. And although the democracy of the country’s Fourth Republic (1958-1998) was enduring, its quality was not high: the party system was restrictive and unrepresentative of many sectors of society, and it eventually suffered a crisis of legitimacy.

Dissatisfied with the economic situation and a discredited political establishment, voters opted for the promises of the populist Hugo Chávez in 1998.

Chávez managed to radically change the country’s politics and economics without resolving any of the underlying political or economic problems. Instead, his free spending, ambivalent attitude towards liberal democracy, and astonishing economic mismanagement by both him and the feckless Maduro steered the country into today’s crisis.

President Hugo Chávez greeting supporters ahead of his election as president in 1998 (left). President Nicolás Maduro, Chávez’s handpicked successor, wearing the presidential sash in 2015 (right).

Oil Dependency and the Resource Curse

Venezuelan diplomat Juan Pablo Pérez Alfonzo, a founding member of the Organization of the Petroleum Exporting Countries (OPEC), predicted that Venezuela’s dependence on petroleum would leave it destitute. Amid the oil boom of the 1970s, he prophesied, “Ten years from now, twenty years from now, you will see; oil will bring us ruin ... It is the devil’s excrement.”

The statement proved prescient.

Unlike some of its neighbors, which were long dependent on exporting a single commodity but have since diversified, Venezuela is a rentier state wholly dependent on the extraction and export of petroleum and its derivatives. The oil sector is the country’s largest source of foreign currency, the biggest contributor to the fiscal sector, and the leading economic activity. In 2016, revenue from petroleum exports accounted for more than 50 percent of the country’s GDP and roughly 96 percent of total exports.

A graph showing oil as a percentage of export earnings in Venezuela from 1998 to 2013 (graph created by the author from information from the Venezuelan Central Bank).

This level of dependency causes a “paradox of plenty,” or “resource curse,” in which a country with large natural resource endowments is nonetheless hard pressed to develop. It also leads to corruption, since a limited number of people generate wealth and the government plays a central role in distributing it. In places with weak representative institutions, oil booms—which create the illusion of prosperity and development—may actually destabilize regimes by reinforcing oil-based interests and further weakening state capacity.

All of this has happened in Venezuela, where oil dependency has contributed to at least three recurrent problems. First, it is difficult for dependent states to invest oil rents in developing a strong domestic productive sector.

Abundant revenue from natural resource extraction discourages the long-term investment in infrastructure that would support a more diverse economy. Venezuelan leaders have long recognized this challenge. In a famous 1936 op-ed, writer and intellectual Arturo Uslar Pietri urged his countrymen to “sembrar el petróleo” (plant the oil) by using oil rents to grow the country’s productive capacity, modernize, and educate.

Venezuelan intellectual Arturo Uslar Pietri urged his fellow citizens to use oil profits to develop the country and its people (left). A graph of Venezuela’s production (grey), consumption (black line), and exportation (green) of oil from 1965 to 2015 (right).

Leaders have been unable to heed his advice. Instead, mini-booms in oil prices consistently reverse growth in Venezuela’s non-oil sector, which sees an average 3.3 percent growth in pre-boom years turn into -2.8 percent in post-boom years.

The result is continued dependence on oil revenue at the expense of other industries, and a concentration of risk in a volatile commodity. As the above graph shows, oil dependency has grown since 1998, as the percent of export earning derived from petroleum rose from under 70 percent to more than 95 percent in 2012—and a reported 96 percent in 2016.

Second, in times of bonanza, oil rents may also cause a growing dependence on foreign imports at the expense of domestic industry.

This is due to the fact that new discoveries or rapidly rising prices of oil bring a sharp inflow of foreign currency. An increase in currency reserves leads to appreciation in the value of the currency, which hurts the competitiveness of the other products on the export market and increases dependence on foreign imports, which are cheaper. When oil money is flowing, imports increase.

However, when crude prices drop and petrodollars fall, as they have now, it becomes more difficult for the government to import goods, as demonstrated by scarcity in the 1980s and again since 2012. Compounding things right now, Venezuela’s government has made it a priority to pay its sovereign debt obligations rather than import more goods.

Petróleos de Venezuela, SA, the state-run oil company’s building in 2008 with a sign reading “Fatherland, Socialism, or Death.”

A third consequence of the resource curse is endemic corruption. Countries heavily dependent on external rents, such as natural resource exports, are able to embark on large public expenditure programs without having to develop a fiscal system to tax their populations. As a result, citizens have reduced incentives to hold the government accountable.

Further, whenever public agents have monopoly power and discretion over the distribution of valuable rights, incentives for corruption increase. This has long been the case in Venezuela, which has suffered from public sector corruption dating back at least to democratization in 1958. As oil prices skyrocketed in the late 2000s, horizontal checks on executive power and oversight of the state-run oil company, Petróleos de Venezuela, SA (PDVSA) decreased. Today, corruption has reached unprecedented levels.

Transparency International’s Corruption Perceptions Index (CPI) in Venezuela from 1995 to 2015. A higher number reflects higher probity and a lower number more corruption (graph created by the author).

This is reflected in the evolution of Transparency International’s Corruption Perceptions Index in Venezuela. The country consistently ranked in the top 10% of the world’s most corrupt countries beginning with the first survey in 1995. Yet probity has dipped further since the mid-2000s, reflecting decreasing confidence in any measure of government rectitude under both Hugo Chávez and Nicolás Maduro.

The Military, Democratization, and “Partyarchy”

Political factors such as a tradition of military government, late democratization, and weak democratic representation have also greatly contributed to the present crisis.

Simón Bolívar, known at El Libertador, was a military and political figure who played a leading role in bringing independence from Spain to Venezuela, Bolivia, Colombia, Ecuador, Peru, and Panama (left). A 2014 military parade to commemorate President Hugo Chávez’s death in 2013 (right).

Independence hero Simón Bolívar supposedly said that “Ecuador is a convent, Colombia a university, and Venezuela a military barracks.” Indeed, the Venezuelan armed forces have been key actors in Venezuelan politics and state building. Until Julián Castro’s military dictatorship in 1858, all post-independence leaders were ex-military officers who represented the Liberal and Conservative parties.

Alternation between active and retired officers holding political power ended definitively with the Liberal Restoration Revolution of 1899. From that time until 1945, a succession of military officers ruled the country under dictatorship: Cipriano Castro (1899-1908); Juan Vicente Gómez (1908-1935); Eleazar López Contreras (1935-1941); and Isaías Medina Angarita (1941-1945).

President Cipriano Castro ruled Venezuela from 1899 to 1908 after seizing power with his personal army (left). President Juan Vicente Gómez seized power from his predecessor and ruled from 1908 until his death in 1935 (second from left). President Eleazar López Contreras served as his predecessor’s War Minister before ruling Venezuela from 1935 to 1941 (third from left). President Isaías Medina Angarita also served as his predecessor’s War Minister and ruled Venezuela from 1941 until 1945 (right).

The country attempted electoral democracy during the trienio adeco (1945-1948), but this was quickly followed by the repressive dictatorship of Marcos Pérez Jiménez. In the absence of interstate conflict, the armed forces saw themselves as the key institution fostering internal development and modernization.

Military involvement in politics meant democracy arrived late. Stable democracy, in fact, did not occur until 1958, when representatives of Venezuela's three main political parties—the Social Democratic Acción Democrática (AD), Social Christian COPEI and Unión Republicana Democrática (URD)—signed a formal agreement known as the Pact of Punto Fijo.

President Rómulo Betancourt, the “Father of Venezuelan Democracy,” voting in 1946 (left). President Marcos Pérez Jiménez, who ruled as a military dictator from 1952 to 1958, receiving a commendation from U.S. Ambassador Fletcher Warren in 1954 (right).

The pact aimed to preserve democracy through elections, cabinet and bureaucratic power sharing, and a basic program of government. Although the accord allowed Venezuelan democracy to survive the tumultuous 1960s and a leftist guerrilla threat, as well as destabilization attempts by the Dominican Republic’s right wing dictator, Rafael Leónidas Trujillo, it also helped bind Venezuela’s political system to exclusive competition between two parties, AD and COPEI, after the URD lost power in the 1960s.

This two-party dominance created what Michael Coppedge termed “partyarchy”: government of the people, by the parties, for the parties. In it, AD and COPEI exercised a “pathological kind of political control” over political, economic, and social life that guaranteed stability at the expense of representation.

The parties relied on a system of concertación, in which they would confer with each other or business and military interests to seek consensus on major policies. They also used patronage to coopt civil society organizations and other means of limiting channels of representation such as interest groups, the media, and the courts.

From left to right, Rafael Caldera, Jóvito Villalba, and Rómulo Betancourt at the signing of the Pact of Punto Fijo in 1958 (left). The logo of the Social Democratic Party, Acción Democrática, (AD) (top). Members of the Social Christian Party, COPEI, marching for a mayoral candidate around 2010 in the party’s trademark green color (bottom).

These limitations hurt the system, and as oil prices fell and resources for patronage dried up in the 1980s, public support for the parties and the Fourth Republic democratic system declined.

Venezuela’s achievements in the 1960s and 1970s, look less impressive through the prisms of oil dependency and democratic rigidity. While GDP per capita, social spending, and quality of life all rose, and while the country avoided the democratic collapses of Chile, Uruguay, Argentina, and others, its gains were ultimately unsustainable.

These fundamental political and economic weaknesses also created conditions for the crises of the 1980s and 1990s and paved the way for the allure of populism and the explicit involvement of the armed forces in politics in the 2000s.

Economic Crisis and the Unraveling of Partyarchy

The economic shoe was the first one to drop, as oil prices collapsed in the early 1980s. High public debt, the drying up of international loans, and an overvalued currency led to massive capital flight in 1982 and early 1983.

On February 18, 1983, or viernes negro as it is known in Venezuela, the government established currency controls—something Chávez would do 20 years later—to stop this flight and halt inflation. Purchasing power declined by almost 75 percent overnight.

Worldwide crude prices per barrel of oil varied substantially from 1970 to 2015 (graph created by the author).

Partyarchy also began to crumble.

Buffeted by low oil prices and rising interest rates on its international debt, the Venezuelan government struggled to finance itself. President Carlos Andrés Pérez attempted a fix through a packet of neoliberal economic reforms in February 1989, but they only further aggravated the economic situation for the working class, leading to a wave of protests, riots, and looting on February 27 that left hundreds of civilians dead.

Police patrolling after the riots, known as Caracazo, in February and early March of 1989.

In its wake, the Revolutionary Bolivarian 200 Movement (MBR-200), a radical left-wing group led by Army Lieutenant Colonel Hugo Chávez Frías, accelerated its planning for a coup d’état. This February 1992 coup attempt was unsuccessful—as was a second attempt by the Air Force in November of that year—but it marked the beginning of the end of Punto Fijo democracy.

A deep institutional crisis followed during the 1990s with the impeachment of Pérez in 1993 and a major financial and economic crisis during the Rafael Caldera administration (1994-1999) that coincided with the lowest international crude prices in decades.