Chavismo: Erosion of Liberal Democracy and Populist Economics

Conditions were ripe for the emergence of a political outsider. The individual to capitalize on voters’ disaffection with the political and economic status quo was the charismatic and flamboyant Chávez, who had gained a national profile after his failed 1992 coup.

Campaigning on a platform of “Bolivarianism,” a radical reimagining of the state that included economic and political sovereignty, self-sufficiency, democratic socialism, and participatory democracy, Chávez promised a break with Venezuela’s unjust political and economic systems. Among other things, he pledged to establish a constituent assembly to rewrite Venezuela’s constitution and enshrine Bolivarianism as law.

Campaign posters for Hugo Chávez’s reelection in 2012 (left). President Hugo Chávez in his trademark red beret and Venezuelan flag tracksuit in 2013 (right).

As a political outsider, he argued that he would end public sector corruption. Most importantly, he promised to eradicate poverty, expand state services to the poor and working classes, and incorporate these excluded groups into the political process. His electoral gambit worked, as he defeated the conservative Henrique Salas Römer with a resounding 56.2% of the vote, and began the first of four terms in office.

Armed with majority (and at times supermajority) support in the National Assembly, Chávez was a polarizing figure, adopting a majoritarian-style, plebiscitary interpretation of democracy that largely ignored the views and values of his opposition.

In his incendiary speeches he denigrated political opponents as escuálidos (feeble ones), rancid oligarchs, and lackeys of imperialism, among other insults. Members of the non-revolutionary bourgeoisie were “pitiyanquis” (little Yankees) and opposition politician Henrique Capriles a “low life pig.”

The war went beyond words. In 2004, National Assembly member Luis Tascón published a list of the millions of Venezuelans who petitioned in 2003 and 2004 for Chávez’s recall, leading the government to discriminate against signatories.

Politically, the president moved slowly to accumulate power and eliminate checks on his socialist project: he packed the courts, filled the ranks of the military with loyalists and integrated the armed forces into politics, systematically dismantled independent media, and, in the wake of a general strike in 2002-2003 aimed at removing him, replaced opponents within PDVSA. Buoyed by a favorable economic situation, high approval with his base, and a fragmented opposition, the president won reelection in 2000, 2006, and 2012.

Venezuela’s Gross Domestic Product rose from 1990 to 2011, especially during Hugo Chávez’s presidency (left). Beloved by many, street vendors in Venezuela sold action figures of President Hugo Chávez and hats in the president’s trademark red color in 2006 (right).

But Chávez was not a democrat by conviction so much as by convenience. He turned to elections as a route to power only after his failed 1992 coup, and rarely tolerated the dissenting voices characteristics of democratic pluralism.

By the time of his death in 2013, Venezuela was neither a liberal democracy nor a dictatorship, but a hybrid regime in which the political playing field was decidedly tilted in favor of the governing Partido Socialista Unido de Venezuela (PSUV, the United Socialist Party of Venezuela).

Liberal democracy also suffered due to a blundering and often divided political opposition. Perhaps the most short-sighted and detrimental action was a failed military coup against Chávez in 2002, which provided him an opportunity to question the democratic values of this political coalition, while simultaneously allowing him to restructure the armed forces and remake it into a far more ideological and regime-loyal institution.

The general strike of 2002-2003 against his government likewise provided justification for the removal of some 18,000 PDVSA employees, while subsequent boycotts and demonstrations have frequently served to strengthen the regime and demonstrate its superior force. In 2005 the five major opposition parties withdrew from legislative elections over a dispute about the voting process, providing Chávez the luxury of a parliamentary supermajority and law-making carte blanche for a five-year period.

President Hugo Chávez at a meeting of the Partido Socialista Unido de Venezuela in 2008 (left). A 2007 rally to celebrate the fifth anniversary of President Hugo Chávez surviving the 2002 coup attempt (right).

Economically, the ruling party was aided by a surge in oil prices, which grew from under $10 a barrel in 1999 to more than $140 in 2008. Flush with cash, Chávez was able to pursue an ambitious domestic and foreign policy agenda. Government social spending targeted the popular classes, especially the misiones sociales (social missions) that brought state services such as health care, education, and subsidized food to the poor.

At the peak of the oil boom from 2006 to 2011, Venezuelans’ quality of life improved at the third-fastest pace worldwide according to the United Nations’ Human Development Index. From 1999 to 2009, poverty decreased, unemployment fell from 14.5 percent to 7.6 percent, GDP per capita grew $4,105 to $10,810, and infant mortality fell from a rate of 20 per 1,000 live births in 1999 to a rate of 13 per 1,000 live births in 2011.

However, these improvements were largely ephemeral. As with the Pérez government in the 1970s, economic improvement under Chávez hid structural debilities and a profound democratic deficit.

A social mission class in northern Venezuela teaching reading and writing in 2004 (left). The percentage of Venezuelans in extreme poverty has decreased since 2003 (right).

Instead of building up Venuezela’s foreign-exchange reserves or creating a diversified investment portfolio to reduce the economy’s long-run exposure to petroleum, Chávez continued to spend freely at home and even sent oil abroad at preferential rates in an attempt to cultivate regional allies.

He also made three costly policy decisions: expropriating private enterprises, establishing currency exchange controls, and instituting price controls on many basic necessities. As oil prices have fallen since 2011 and the government is able to import fewer goods, the result of these three economic decisions has been devastating.

The first of these was the expropriation or nationalization of numerous private enterprises, including oil, agriculture, finance, heavy industry, steel, telecommunications, power, transportation, and tourism—especially after Chávez was re-elected in 2007. While the government expropriated only 15 private enterprises from 2002-2006, it seized 1,147 between 2007 and 2012.

President Hugo Chávez befriended Fidel Castro in the 1990s and supplied Cuba with oil at a reduced rate (left). The Presidents of Ecuador, Bolivia, Argentina, Brazil, Paraguay, and Venezuela signing an agreement in 2007 to establish the Bank of the South, a monetary fund and lending organization to support left-leaning South American nations with infrastructure and social projects (right).

The effects have been disastrous.

These expropriations not only closed productive sectors and replaced them with inefficient state-owned enterprises, but they also helped drive away investors. State seizures of private businesses have damaged the productive sector, forcing Venezuela to double down on imports.

A second persistently problematic policy is foreign currency controls. In an attempt to force a vote to recall Chávez, the political opposition organized a massive general strike from December 2002 to February 2003, causing an oil stoppage that reduced production to one-third its previous levels.

To deal with loss of revenue, Chávez fixed the exchange rate between the local bolívar and the U.S. dollar and gave the government the authority to approve or reject any purchase or sale of dollars. The measure was a short-term remedy and a ticking time bomb. With a decline in dollars, black market demand for the currency skyrocketed (causing some Venezuelans to engage in the so-called raspao and other forms of arbitrage).

Instead of lifting currency controls and normalizing the exchange rate, the current Maduro government continues to print more money, further raising the de facto inflation. The below graph demonstrates this nicely: while inflation dropped after spiking in 2003, it increased in 2009 and has shot up rapidly since then.

Inflation in Venezuela from 1960 to 2015 (graph created by the author).

Moreover, with currency controls in place, private companies cannot import the raw materials they need. Multinational corporations such as Bridgestone, Clorox, General Mills, and others have pulled out of the country due to the difficulty of importing raw materials.

In early 2016, Coca-Cola briefly halted production at two of its bottling plants due to a sugar shortage. Meanwhile, the country’s largest brewer, Cervecería Polar, was unable to produce beer because it had not received foreign currency to import malted barley.

A third damaging economic policy has been strict governmental restrictions on prices for a range of foods and goods. Price controls on key products have been a constant in Venezuela since World War II to make basic necessities more affordable for the poor, but they were never as deep or widespread as under Chavismo.

The Chávez and Maduro governments have set prices so low that companies and producers cannot make a profit on the goods, resulting in scarcity. As a result, farmers grow less food, manufacturers cut back production, and retailers stock less inventory. The government expropriations deepen the problem, since some of the shortages are in industries, such as dairy, sugar, and coffee, in which the government has seized private companies and is now attempting to run them.

Unable to obtain sufficient stock, many stores like this one in 2013 had empty shelves (left). A line of customers hoping to buy some of the few goods available stretches outside a grocery store in 2014 (right).

In sum, when oil prices were high, Chávez made economic policy decisions that yielded short-term dividends but long-term losses. Since oil prices have dropped, these decisions have turned catastrophic.

Nicolás Maduro: From Bad to Worse

After Chávez’s death in 2013, his chosen successor, Maduro, narrowly defeated Henrique Capriles of the opposition Democratic Unity Roundtable (MUD) coalition in the April 2013 election. The less charismatic Maduro has confronted falling oil prices and low popularity by doubling down on the late Chávez’s policies, tying his political survival to that of senior military officers and clamping down on dissent, moving Venezuela from a hybrid regime to an outright authoritarian one.

President Nicolás Maduro courted voters in 2013 via the popularity of the late President Hugo Chávez. The sign reads: “Chávez, I swear, my vote is for Maduro” (top). In 2016, on the third anniversary of Chávez’s death, Maduro—wearing Chávez’s iconic tracksuit—attended a commemoration for the late president (bottom).

First, the military has become an increasingly influential actor within the Maduro regime, and is in many ways a “de facto branch of Chavismo.” After his appointment in July 2016 as head of national food distribution and a coordinating chief of staff, Minister of Defense General Vladimir Padrino López has become one of the most influential leaders in the country. Chávez politicized the organization beginning with a series of purges and new patterns of regular reassignment since the failed 2002 coup, and he named close senior military officials to government positions.

Other officers have been accused of complicity in narcotrafficking and corruption. Maduro recognizes the enormous power the armed forces wield, as well as their vested interest in maintaining the status quo, and has named their leaders to cabinet positions, shielded them from foreign indictments, and surrounded himself with officers.

Despite the deleterious effects of price and currency controls, expropriations, and control over food distribution, the government is unwilling to deviate from its course. Instead, Maduro’s response has been more of the same.

The president’s economic advisors have pushed for more state controls on manufacturing and food supply instead of pursuing orthodox macroeconomic strategies such as loosening price controls, disarming the complex currency exchange controls, and reducing the amount of currency in circulation.

Venezuela’s GDP growth as a percentage from 1960 to 2015 (graph created by the author).

Additionally, officials who enjoy preferential access to dollars and thus benefit from the foreign exchange system have little reason to lift price controls, and it would be anathema to Chavismo to consider privatizing previously expropriated and nationalized industries. These signs are troubling for an economy that has contracted in both 2015 and 2016.

The near term is grim.

The oil industry is in bad shape, as heavy Venezuelan crude has been trading at $45-55 per barrel in 2017. Yet production continues to decline as broken equipment sits idle and the existing wells pump at far below capacity. Unless oil prices rebound significantly or the government finds new lines of credit, Venezuela is nearing a default on its $10 billion debt.

Politically, Maduro has tightened his grip on power by engaging in growing repression and blocking or impairing legal avenues for dissent and politicking. He has jailed critics or opponents as political prisoners, purged the state of public servants who favored the 2016 recall referendum, and militarized a large part of its public security apparatus. After Chávez’s death, there were about a dozen political detainees. Today, there are more than 117 in the country.

A protest against the arrest of protestors, particularly Leopoldo Lopez—a popular politician arrested in 2014 (top left). A child protestor asking for freedom for her mother, a political prisoner (top right). A 2014 sign detailing why Venezuelans protest: insecurity, injustice, shortages, censorship, violence, and corruption. The red box at the bottom declares: “Protesting is not a crime. It is a right.” (bottom).

Since the government postponed regional elections and suspended the presidential recall referendum in October 2016, the country can now be classified as authoritarian. Political dialogue has so far failed to produce any meaningful resolution or compromise.

Instead, on March 29, the Venezuelan Supreme Tribunal (TSJ) announced it would assume the National Assembly’s parliamentary functions so long as the popularly elected organ remains in desacato (contempt of court)—essentially dissolving the opposition-led assembly before international pressure and backroom negotiations led to a reversal.

This move appears to be the straw that broke the camel’s back for the opposition. Hundreds of thousands of Venezuelans have taken to the streets daily to protest the government and demand elections. Confrontations with state security forces have resulted in at least 50 deaths.

A protestor attempting to block the police during "the mother of all marches" in April 2017.

Latin American political leaders, major league baseball players, and even the Venezuelan conductor Gustavo Dudamel, long silent on political matters, have condemned government repression.

But the government has remained intransigent.

After the “mother of all marches” on April 19, in which tear-gassed protestors were pushed into Caracas’s sewage-infested Rio Guaire, Maduro retweeted a photo referring to them as human excrement. On May 2, he provoked further crisis by calling for a new constitution under a handpicked, non-democratic constituent assembly. As conditions continue to deteriorate, the country could soon reach a breaking point.

Freedom ratings in Venezuela from 1998 to 2013.

Lessons for the Future

Venezuela’s misfortune offers a number of lessons.

Politically, it suggests that free and fair elections are necessary but not sufficient for democracy, and that democracy requires effective ongoing citizen participation, political representation, and political equality.

Similarly, it also shows how easily states can move among dictatorship, democracy, and hybrid regimes. Countries with shallow democratization or limited representation like Venezuela are at a greater risk of democratic backsliding than places where voters possess high political efficacy and feel represented.

A massive protest against President Hugo Chávez in 2004.

Economically, this experience offers a case study of the dangers of resource dependency—especially in the context of underdeveloped institutions. Oil grew Venezuela’s economy, but generated a reliance that has undermined development.

The country’s wealth, like that of so many commodity-dependent places, was more illusory in the 1970s and the 2000s than many believed. This also suggests that a rise in oil prices right now would be palliative rather than curative, since the same structural problems would continue to plague the economy. Resource-dependent countries need to find a way out of the vicious cycle of the resource curse in order to build their productive economy.

Lastly, Venezuela’s crisis shows the real and immediate effects that dogmatic policymaking has on economies and societies. There are plenty of oil-dependent, weakly democratic states in the world, but none that has experienced the type of implosion that Venezuela has.

Hugo Chávez, Nicolás Maduro, and the PSUV made—and continue to make—reckless political and economic decisions. Just as the current depths of Venezuela’s crisis were avoidable, so too is its occurrence in other places.

The views expressed in this report are solely those of the author and do not represent the views of or endorsement by the United States Naval Academy, the Department of the Navy, the Department of Defense, or the United States government.

Read and Listen to Origins for more on Latin America: Colombia and the FARCCuba and the U.S. Reengage; Inflation and ArgentinaRethinking Cuba Libre; Global Migration and the AmericasLatin American Drug TraffickingBrazil’s ElectionsBrazilian PoliticsAnti-Americanism in Latin America; Mexico City; and The Guatemala Inoculation Experiments.