Venezuela and the Resource Curse

By Aditi Poduri

The political and economic crisis in Venezuela has been a subject of debate among Western political pundits recently, with many conservative voices pointing to the crisis as proof that socialist policies lead to ruin. These arguments are persuasive; President Hugo Chavez undertook costly social welfare programs, and his popularity among the working class elected his successor Nicolás Maduro. Under Maduro’s regime, Venezuela’s economy collapsed, with severe shortages of medicine and medical supplies, and starvation on the rise. While there is a crisis in Venezuela, and that the regime enacts socialist policies, it is not necessarily true that the latter led to the former. Blaming social welfare policies is an oversimplification of the varying factors that have lead to the economic collapse of Venezuela and it ignores the nuances of the country’s oil-dependent economy. 

Venezuela’s precarious situation before it’s economy collapsed can perhaps best be described by the term resource curse. According to Michael L. Ross, the resource curse “might be defined as the adverse effects of a country’s natural resource wealth on its economic, social, or political well-being.” It is used to “describe a wide range of maladies in resource-rich countries, particularly in Africa, the Middle East, Latin America, and the former Soviet Union.” Venezuela is a unique victim of the resource curse, as it is considered a petrostate. A petrostate may be defined by the following characteristics: a government whose income is highly dependent on the export of oil, a concentration of power with the elite, widespread corruption, and low accountability of political institutions. Venezuela is a special case study in the collapse of a petrostate. Oil was first discovered in 1922 before Venezuela developed strong state infrastructure. Within a matter of years, though, oil accounted for 90% of exports. 

This rapid dependence on oil is typical of petrostates. The discovery of oil prompts large inflows of foreign capital, which appreciates the local currency. When a currency appreciates, goods manufactured in other countries become comparatively cheaper, which means labor and capital begin moving away from other industries and into the oil industry. The over-reliance on oil precludes good governance, allowing leaders to “repress or co-opt political opposition” (Labrador). Hugo Chavez, the nation’s leader from 1998-2013, began pushing the country toward autocracy which was continued by his successor and the current president Nicolás Maduro. Venezuela, as a petrostate, was and currently is extremely vulnerable to fluctuations in global oil prices. When prices fell in mid-2014, Venezuela’s economy “went into free-fall.” 

Meanwhile, Maduro grew increasingly authoritarian by banning protests, imprisoning political adversaries, and suspending the National Assembly. Maduro’s attempts to rein in the failing economy by printing money would drive up inflation, making imports expensive and forcing businesses to shut down. Maduro would then print money again, worsening the inflation. This cycle destroyed the economy: GDP has shrunk by double digits for the past 3 years, and as of July 2019, annual inflation was 264,872%. It’s hard to understate the damage Maduro’s monetary policy has caused; Al Jazeera refers to it as an “unprecedented humanitarian crisis.” Starvation is on the rise, and malnourishment was at 21% last year. Displacement as a result of Venezuelans fleeing the country due to hunger is estimated to be around three to five million people as of 2019. 

The economic crisis caused by export reliance on oil, as well as government mismanagement of the economy, precipitated Venezuela’s drastic economic decline. But that hasn’t stopped the right-wing mediasphere in the United States from using Venezuela to decry social welfare policies. This is a purposeful tactic; according to Politico, “the socialism issue resonates deeply with Trump’s base,” and that the “best avenues for reelection is painting Democrats as out-of-touch radicals.” Understanding the resource curse and petrostates not only provides a more nuanced perspective on the factors that lead to failed states but provides the ability to identify disingenuous arguments as a political tactic. 

Photo courtesy of Voice of America (Wikimedia Commons).

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