Posted by Michael Kennedy on May 21st, 2016 (All posts by Michael Kennedy)
Venezuela is in the news as the country cannot even buy paper to print money.
This all goes back to 1998 when Chavez was elected by the people.
He was an army officer and had previously attempted to overthrow the government, a coup that failed.
in the early 1980s. Chávez led the MBR-200 in an unsuccessful coup d’état against the Democratic Action government of President Carlos Andrés Pérez in 1992, for which he was imprisoned. Released from prison after two years, he founded a political party known as the Fifth Republic Movement and was elected president of Venezuela in 1998.
Venezuela is an example of The Curse of Natural Resources.
The idea that resources might be more of an economic curse than a blessing began to emerge in debates in the 1950s and 1960s about the economic problems of low and middle-income countries. The term resource curse was first used by Richard Auty in 1993 to describe how countries rich in mineral resources were unable to use that wealth to boost their economies and how, counter-intuitively, these countries had lower economic growth than countries without an abundance of natural resources. An influential study by Jeffrey Sachs and Andrew Warner found a strong correlation between natural resource abundance and poor economic growth.
Venezuela is only the latest and worst example. The history is depressingly familiar.
Venezuela is ultimately what is known as a ‘petro-state’. Oil revenues account for 94 percent of export earnings, 50 percent of budget revenues, and 30 percent of GDP. But since 2001, overall oil production has fallen by roughly one-quarter,while since 1997; oil exports have dropped by almost 50 percent. It is no coincidence that these declines coincide with Hugo Chavez becoming President in 1998.
Venezuela nationalized its oil industry in 1976, creating the state-run company Petroleos de Venezuela (PDVSA). Upon taking office, Chavez immediately increased state control of the oil industry even more, in order to gain more control of its coffers. As Daniel Yergin says in his book ‘The Quest’, PDVSA ‘became the cash box of the state’, which caused immediate tension between Chavez and PDVSA. It didn’t take long for these tensions to escalate.
Saudi Arabia is another example that is slowly teetering toward disaster.
Companies in the oil-exporting country have been forced to shed tens of thousands of employees in recent months. The government, in turn, has imposed painful austerity measures on citizens, ripening conditions for Arab Spring-like turbulence, analysts say.
Late last month, construction workers torched buses during demonstrations in the holy city of Mecca because they hadn’t been paid in months.
Adding to unease has been the meteoric rise of King Salman’s 30-year-old son, Mohammed bin Salman. He has taken charge of economic reform, but rival royals and religious elites appear rankled by his attempts to consolidate power.
The Saudis support a large population of young men with no jobs and no skills.
The plan includes the partial privatization of the state oil company, Saudi Aramco, and envisions massive job creation. Unemployment has become especially problematic for Saudis younger than 30, the majority of the kingdom’s 22 million citizens.
Economic growth has tapered off recently and budget deficits have grown, spurring the International Monetary Fund to warn last year that Saudi Arabia could run out of cash if it failed to make reforms.
Authorities have responded to the crisis by cutting subsidies for water, fuel and electricity, but financial experts say more is needed — possibly taxation, a hot-button issue for Saudis.
It may be no coincidence that Saudis were heavily involved in the 9/11 attack on the US.
former Democratic Senator Bob Graham, the former head of the Senate intelligence committee, reiterated his belief that Saudi Arabia was involved in the attacks at the highest level. He said “The most important unanswered question of 9/11 is: did these 19 people conduct this very sophisticated plot alone, or were they supported? So who was the most likely entity to have provided them that support? I think all the evidence points to Saudi Arabia. I think it covers a broad range, from the highest ranks of the Kingdom through these, what would be private entities.”
The “Curse of Natural Resources” even affects modern societies like Norway, which seems to have avoided the worst.
As one of the centres of Norway’s booming oil and gas industries, it is also a very wealthy place.
Yet there are few displays of ostentatious spending – there are no supercars with tinted windows, no designer handbag shops, and no queues of people outside exclusive nightclubs.
For while other countries have struck oil and then binged on the revenues, by contrast Norway is continuing to invest its oil and gas money in a giant sovereign wealth fund.
The fund, worth about $800bn (£483bn), owns 1% of the entire world’s stocks, and is big enough to make every citizen a millionaire in the country’s currency, the kroner. In effect, it is a giant savings account.
And most Norwegians are seemingly very content with this – according to a 2012 study by New York’s Columbia University Norway is one of the world’s happiest countries.
They know it will not last forever.
As for when the oil does eventually run out, “Norway will survive, but it will be a challenge for all of us,” he says.
“Our challenge will be to utilise our expertise and use it in other areas.”
It’s a point of view echoed by Dag Rune Olsen, rector of Bergen University: “I worry we do not invest to a sufficient extent in other ways to generate income in the next decades.
“We are very well aware that the oil and gas resources are limited, and at least for Norwegian oil it will cost us more year by year to extract the oil,” he says.
“It is evident we need to find other sources of income, and now we have the ability to invest – it is crucial that we do.”
This did not occur in Venezuela and now they cannot buy toilet paper.
In the last three years, the “heir” of Hugo Chávez has led the country into a maelstrom of anarchy and annihilation that one would expect only of a nation devastated by war. Statistics for homicides, impunity, repression, political persecution, censorship, inflation, devaluation, business closures and expropriations, unemployment and migration – already terrifying during the Chávez era – have gone through the roof.
Maduro and his allies are not blind; they probably realise that they are not capable of running the country. That’s not to say that that was ever a concern for them. Like their patriarch Chávez, they seem to be more interested in encouraging conflict and facing off with enemies, real or imaginary, than in the tedious and complex job of actually managing a government. But they can’t and won’t admit defeat.
According to an analyst from the Basel Institute on Governance, more than $350bn has vanished from Venezuela’s treasury during the “revolution”. Government officials, including many in the military, know that handing power to the opposition will lead to investigations and prosecutions.
Revolutions in the 20th century, usually create billionaires and slaves.
Perhaps the first major 20th century writer to realize that the ambition of all true Communists should be to become billionaire revolutionaries was Hilaire Belloc. In his 1912 book the Servile State, Belloc argued the then-burgeoning Communist movement would find more success ditching Leninism in favor of a alliance with Crony Capitalists to reinstate Slavery. “Slavery, or a Servile State in which those who do not own the means of production shall be legally compelled to work for those who do, and shall receive in exchange a security of livelihood”.
This modern form of slavery would address not only the concerns of the revolutionaries by fixing job insecurity and guaranteeing retirement on a plantation basis but also assuage the monopolists, who stay up nights worrying about preserving market share in the face of competition. An alliance between socialists and crony capitalists would solve both problems at once. The only price to pay for this convenience is the loss of public freedom and that is readily paid.
But the combination ultimately cannot pay the bills.
Collectivism cannot even pay its pensions. “The present value of unfunded obligations under Social Security as of August 2010 was approximately $5.4 trillion. In other words, this amount would have to be set aside today such that the principal and interest would cover the program’s shortfall between tax revenues and payouts over the next 75 years.” One of the culprits, ironically is that the socialists have succeeded all too well and changing mankind’s dreadful habit of forming families and breeding children.
It’s not just the Government that’s broke but also its political partners. Recently the Teamsters’ Central States Pension Fund announced that it was bust. Unless it gets an infusion of taxpayer money pension benefits for about 407,000 people could be reduced to “virtually nothing”.
And Venezuelans have no toilet paper. We will follow them in a few years unless we have a revolution.