Venezuela's economy has been in decline for a long time now, but a spate of recent news articles highlights how bad the situation has become. The New York Times reports on the deteriorating state of Venezuelan medical care. The situation has prompted the government to declare a state of emergency, which given Venezuelan President Nicolas Maduro's record, seems likely to make things worse.
Normally this makes for lively yet inconclusive debate. But in a situation as severe as Venezuela's, it's fairly clear to identify the major policy culprits. As Moises Naim and Francisco Toro write in the Atlantic, most of the blame here has to fall on the policies of Hugo Chavez, who ruled Venezuela from 1999 until his death in 2013, and his successors.
Price controls--an attempt to deal with Venezuela's runaway hyperinflation--seem to have been an especially harmful policy. Pegging the prices of daily necessities at low levels led to shortages--everyone rushed out to buy the cheap stuff, leaving store shelves bare. The government then responded with the typical but misguided strategy of punishing those it deemed hoarders, which required the police to go around arresting anyone who seemed to have too much of a commodity. Unfortunately, since no one knows how much is too much, least of all the police, this generally leads to people being arrested for owning necessary amounts of things like food and toilet paper.
Could Venezuela's troubles have been caused by the actions of foreign governments or corporations? The few remaining Chavez defenders (including Maduro) tend to make this claim, but it just doesn't make much sense. The timing is all wrong--foreign efforts to discredit or overthrow Chavez were probably most intense when he was still alive. The 2015 oil price plunge was certainly a blow to Venezuela's already ailing economy. Yet petrostates such as Russia and Iran have been only staggered, not knocked out, by the oil crash.
It seems much more likely that Venezuela has suffered a variant of the fate of other countries that turned to socialist revolutions. Cuba's planned economy didn't collapse, but it has stagnated for decades. India's experiments with socialism also led to decades of slow growth until 1990s reforms undid much of the damage. Yet Cuba and pre-1990 India are wonderful outcomes compared with North Korea. Eastern European economies also fared badly under their imposed communist regimes.
Does this mean socialism is a failure? Certainly not. The economies of Germany, France, Denmark, Sweden, and the UK have their problems, but policies like nationalized health care haven't prevented them from becoming rich, comfortable societies. Meanwhile, many of our most cherished economic institutions, like weekends, breaks from work, overtime rules and Social Security, owe their existence to the socialist movements of the 19th and early 20th centuries.
So when does socialism fail and when does it succeed? That's a big question, and any answer will necessarily be too glib, but I sense a general pattern in the historical record. Countries that have implemented socialism gradually, by tweaking economic institutions and making reforms one by one, have generally stayed healthy. When socialism seemed to be hurting economic performance, countries could dial back redistribution and nationalization before things got really bad. But when countries try to transition to an extreme socialism all at once, they almost always botch it.
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Noah Smith is an assistant professor of finance at Stony Brook University.
Editorial on 05/20/2016