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Silas Thompson

Professor Barnes

English Composition 2

2 December 2019

Venezuela Crisis

Families have been fleeing the country, crime rates have sky rocketed, and disaster has

taken Venezuela by storm. The collapse of the Venezuelan economy has left the nation destroyed

and devastated. Approximately four million residents fled the country in 2018 searching for a

steady income, food, and a safer and more secure place to reside (Reid). This huge migration has

been Latin America’s biggest migration recently due to severe danger, inflation, and scarcity in

the necessities needed to live (Reid). Many people wonder why there has been so much dying,

starvation, and suffering. This crisis is an economic collapse, where their currency has lost its

value, making it extremely difficult for citizens to purchase to necessities they need for life. The

crisis in Venezuela was not solely caused by the Socialist government, but it was also a result of

economic mismanagement and falling oil prices.

This situation is an economic crisis where Venezuela’s economy is in complete shambles.

In technical terms, an economy is defined as, “the wealth and resources of a country or region,

especially in terms of the production and consumption of goods and services” (Economy). A

nation’s economy is a very complex and often unpredictable thing that determines the wellbeing

and strength of a nation. There are multiple components that can show the strength and

prosperity of a nation’s economy. The biggest is the Gross Domestic Product or GDP.

Policonomics says that, “Gross domestic product (GDP) is the market value of all

final goods and services produced within an economy in a given period of time” (Gallego). The
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GPD of a Nation can often be a very clear indicator on how the nation’s economy is doing. A

healthy GPD growth percentage is above 2% and under 4% growth (Amadeo, How Fast Should

the Economy Grow?). According to the International Monetary Fund, Venezuela’s GPD growth

percentages are in extreme disarray at −17.0% in 2016, −15.6% in 2017, −18.0% in 2018 and an

estimated −35.0% in 2019 (World Economic Outlook Database October 2019). This is a clear

indication of Venezuela’s economy in the past few years.

What makes this crisis so threatening and such a huge problem is that the Venezuelan

currency is being devalued and losing its worth. Merriam Webster defines currency as

“circulation as a medium of exchange” (Currency). The reason the country is in such a broken

state is because it is nearly impossible for middle class and lower class citizens to purchase food

and other necessary things they need to live. This is due to inflation. This graph from Forbes

shows the annual inflation rate of Venezuela at a monthly scale.

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Inflation is defined as “A general increase in prices and fall in the purchasing value of

money” (Inflation). So in basic terms, inflation is a nation’s currency losing its purchasing power

and worth. When this happens, people panic and try to stock up on the necessities they and their

families need to live because they know that it will gradually keep getting more difficult to

purchase things from stores. This causes thievery, killing, and riots all throughout the country

adding to the panic. People are going on strike and stealing from stores and other people. There

is starvation and violence all throughout the country making it very unsafe to reside there. The

devalued currency and extreme danger is causing mass amounts of citizens to flee the country.

How did it get this bad?

One cause for the collapse of the economy is Socialism. Meriam-Webster dictionary

defines socialism as “a system or condition of society in which the means of production are

owned and controlled by the state” (Socialism). Socialists believe that production, currency, and

goods should be equally distributed among all classes and people of a nation (Amadeo,

“Socialism’s Pros and Cons). In order for the government to redistribute these things amongst

the people of a nation, they need to own and operate all the industries and large companies to

have control over where the resources are distributed. The downside of money and profits being

distributed among all people, working or not, is that workers can lose their motivation to work

harder and smarter because they know that they will get the same amount of income as everyone

else and there’s nothing they can do to change it. This creates less efficiency and no competition

which in return generates lower production and lower quality in the workplace and in different

industries. Lower production and lower quality in production is a recipe for disaster and can

cause a nation’s economy to go down in flames. The same cliché Socialist cycle was part of the

economic collapse. Venezuela’s has had a recent past of socialism in their leadership. Hugo
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Chavez was president of Venezuela from April 14th, 2002 to March 5th, 2013 (Martz). Maduro

was his Vice-President and took over the role of president after him (McCoy). The mainstream

media and headlines are quick to blame the collapse of Venezuela’s economy solely on

socialism, when there are other factors that contributed to make this crisis occur.

While socialism is definitely part of the reason for the economic collapse, it’s not the

only reason. There are other underlying causes that aren’t in the headlines of the news. The first

underlying cause for this was economic mismanagement. Chavez and Maduro were both

presidents of Venezuela and were both responsible for the economic mismanagement.

Hugo Chavez gained the trust of the lower class because he promised the nation in his

campaign to get rid of poverty and corruption in Venezuela (Martz). It’s very ironic, because

what he promised to get rid of in his campaign is exactly what Venezuela has been faced with in

the past few years. He charged high taxes to the middle and upper classes in order that he could

cater to the working and lower classes as he promised in his campaign (Martz). He gave the

lower and working classes free education, food coupons and social services (Martz). Obviously,

the lower and working classes were happy because they were getting free things handed to them,

but the rest of the country was furious. They went on strikes and held huge protests, especially

after Chavez implemented his economic reforms in 2001 (Martz). Factories and shops closed

due to this chaos and the country began its downward spiral (Martz). People also started to

organize a general strike, which is where workers in multiple industries in a country stop

working to take a stand when they feel the country or the workers are being mistreated or

mishandled or when things are getting too extreme (“General Strike: Meaning of General Strike

by Lexico”).
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In this specific case, they were opposing Chavez’s socialist leadership and the decisions

he was making from the large amount of taxation on the higher classes to his economic reforms.

The workers’ intent for initiating this general strike was to try to force Chavez to resign and if

that didn’t work, they wanted early elections (Martz). It did not matter to the workers how he got

out of office, they just wanted him out. The economy was badly hurt by the closure of the shops

and factories and the strikes in multiple different industries (Martz). The strike in the oil industry

was especially damaging to the economy because oil is Venezuela’s greatest export and largest

industry (Martz). One year later from the shops and factories closing after the strike threats were

dying down a bit, Chavez reopened them, however this did not recover the damage done to the

economy and the nation.

The workers general strike was not successful and in 2006, Chavez was reelected for a 6-

year term (Martz). After his reelection, he started a program of nationalization. Nationalization is

defined as, “The transfer of a major branch of industry or commerce from private to state

ownership or control” (Nationalization: Definition of Nationalization by Lexico).

Nationalization is a key action that differentiates the different forms of governments. In socialist

nations, the government owns the nation’s industries and sectors, where as in a capitalist

economy, private owners own different industries and sectors. Chavez started by taking over the

petroleum sector and then took over electricity, telecommunication, steel, and cement companies

(Martz). Chavez was diagnosed with cancer in 2011 and passed away in 2013 (Martez). His vice-

president, Nicolás Maduro, stepped into his role, but that did not change the country for the

better. Inflation rose to over 50 percent and it began to become very difficult for citizens to get

their hands on the common necessities of life (McCoy). Some of those items include food
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products like meat, rice, and milk, and other items including medicine, toilet paper, and basic

hygiene products (McCoy).

Chavez majorly reduced economic freedom in Venezuela by a series of actions and

decisions. Economic freedom is defined as, “the fundamental right of every human to control his

or her own labor and property. In an economically free society, individuals are free to work,

produce, consume, and invest in any way they please” (“About The Index”). He performed a

significant amount of nationalizations of industries, farms, and companies (Hidalgo). Then he

greatly increased the governmental payroll and public spending (Hidalgo). Another thing he did

was place a number of restrictions and laws on labor, prices, foreign exchange, and credit

(Hidalgo).

It is evident that socialism was a big cause of the economic collapse, but the dropping oil

prices was another factor of the collapse. Oil prices have a massive impact on the state of

economy because it is the country’s biggest export. This is proven to be true, because Venezuela

was once the wealthiest nation in all of Latin America (Specia). At this time, their oil industry

was thriving. The production was booming and the prices were high. The oil prices dropping was

not caused by a hindrance or shortage of natural resources, but it was caused by bad decisions by

the leaders of Venezuela. There are two linked causes that produced the decline of Venezuela’s

oil production (Rapier). First, Chavez fired the professionals in the oil industry (Rapier). Second,

Chavez did not resupply profits back into the oil reserves (Rapier). This is saying that the

decline of the oil industry was caused by the former Venezuelan president, Chavez, who fired

experts in the oil field that were responsible for keeping it running smoothly. Chavez fired these

experts because when he nationalized the oil industry and took it from the company that

previously operated it, he replaced all of the previous workers in the oil industry with
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government employees. These government workers did not have the experience or knowledge to

operate the oil industry at the same level as the experts. This caused the production to decrease

and a result, the prices to decline.

He also didn’t reinvest enough funds back into the oil industry to keep it producing at a

high rate. He used a lot of the gained funds from the oil industry to invest in his social programs

that he promised to the lower class people of Venezuela.

Chavez used petroleum income to pay for his programs which damaged the nation very

much even though it might not have been evident at the time. A country’s economy can be

majorly affected by their natural resources especially if they are one of the nation’s biggest

exports.

This graph from BBC shows how the production has dropped based on which president

was in office. The quick dive down in 2002 was caused by Chavez’s lack of investment in the oil

industry and correct maintenance when managing the industry.

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This image from Statista infographics is another visual image that shows the dramatic

decrease in production and active oil rings.

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This graph shows the decline in oil exports. Venezuela has the largest oil reserves in the

world so its economy is greatly dependent on the state of their oil production and oil prices. So

when the oil industry took a fall, so did the economy. Natural resources and exports of a nation

can severely damage a nation’s economy or majorly benefit it.

There are lots of people that believe this economic collapse was only because of

socialism because that’s what the mainstream media headlines are saying. The Centre for

Independent Studies explains that since there is not a market in socialism, the prices aren’t

affected by supply and demand (Kates). This alone is enough cause to crash an economy (Kates).

This explains that Socialist system alone is capable of destroying a nation and its economy. So

this is saying that all Socialist countries will fail and their economies will be destroyed. This

process described is very possible and has occurred in the downfall of other previously socialistic

countries. Socialism is definitely capable of destroying a nation’s economy, but in this instance,

there were other factors that played into it like economic mismanagement and the falling oil

prices.

There is no denying that socialism is one of the reasons for the crisis, but if it were to be

said that it was the only reason for this severe of an economic collapse, then that would be

incorrect. There are other countries that engage in very socialist programs and those nations are

not in a crisis mode like Venezuela (Hidalgo). For example, Canada has a free-healthcare system

and there are numerous other European countries that have very high taxes, which are both

socialistic (Hidalgo). So it doesn’t add up to say that the only cause of the crisis in Venezuela

was Soviet-related because there is an abundance of countries that enforce very socialist

practices that aren’t in the state of turmoil that Venezuela is experiencing.

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News headlines and individuals are quick to blame Venezuela’s current crisis solely on

their Socialism in general, when in reality, there are other reasons for the collapse of Venezuela

like the falling oil prices, declining oil production, and economic mismanagement. The oil

industry which includes production, prices, and exporting has a huge effect on Venezuela’s

economy. When the oil industry fell due to a lack of investment and maintenance, so did the

economy and the crisis began. Based on this event, it is evident that a capitalist system is a

better option to keep a nation’s economy intact. When wealth is not equally distributed amongst

everyone, but rather rewarded to those in the nation who work smarter and harder than others,

there is more ambition and creativity which allows for a stronger and more successful economy.
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Work Cited

“About The Index.” 2019 Index of Economic Freedom | The Heritage Foundation,

www.heritage.org/index/about.

Amadeo, Kimberly. “How Fast Should the Economy Grow?” The Balance, The Balance, 27

Nov. 2019, www.thebalance.com/what-is-the-ideal-gdp-growth-rate-3306017.

Amadeo, Kimberly. “Socialism's Pros and Cons.” The Balance, The Balance, 27 Nov. 2019,

www.thebalance.com/socialism-types-pros-cons-examples-3305592.

Buchholz, Katharina, and Felix Richter. “Infographic: Oil Production in Venezuela Is Falling

Fast.” Statista Infographics, 11 Mar. 2019, www.statista.com/chart/17315/oil-production-

and-number-of-oil-rigs-active-in-venezuela/.

“Currency.” Merriam-Webster, Merriam-Webster, www.merriam-

webster.com/dictionary/currency.

“Economy: Definition of Economy by Lexico.” Lexico Dictionaries | English, Lexico

Dictionaries, www.lexico.com/en/definition/economy.

Gallas, Daniel. “Venezuela Crisis: Will the US Target Oil Exports?” BBC News, BBC, 27 Jan.

2019, www.bbc.com/news/business-47023002.

Gallego, Lope. “A Nation's Economy: GDP.” Policonomics, policonomics.com/lp-nations-

economy-gdp/.
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“General Strike: Meaning of General Strike by Lexico.” Lexico Dictionaries | English, Lexico

Dictionaries, www.lexico.com/definition/general_strike.

Hanke, Steve. “The U.S. Declares Economic War Against Venezuela.” Forbes, Forbes

Magazine, 3 Feb. 2019, www.forbes.com/sites/stevehanke/2019/01/29/the-u-s-declares-

economic-war-against-venezuela/#2d5d8c2f4711.

Hidalgo, Juan Carlos. “Socialism or Economic Mismanagement? Who Is to Blame for

Venezuela's Plight?” Cato Institute, 14 Feb. 2019, www.cato.org/blog/socialism-or-

economic-mismanagement-who-blame-venezuelas-plight.

“Inflation: Definition of Inflation by Lexico.” Lexico Dictionaries | English, Lexico Dictionaries,

www.lexico.com/en/definition/inflation.

Kates , Steven. “Why Socialism Always Fails.” The Centre for Independent Studies,

www.cis.org.au/commentary/articles/why-socialism-always-fails/.

Martz, John D., and Edwin Lieuwen. “The Hugo Chávez Presidency.” Encyclopædia Britannica,

Encyclopædia Britannica, Inc., 8 Dec. 2019, www.britannica.com/place/Venezuela/The-

Hugo-Chavez-presidency.

McCoy, Jennifer L., and Edwin Lieuwen. “The Presidency of Nicolás Maduro.” Encyclopædia

Britannica, Encyclopædia Britannica, Inc., 8 Dec. 2019,

www.britannica.com/place/Venezuela/The-presidency-of-Nicolas-Maduro.

“Nationalization: Definition of Nationalization by Lexico.” Lexico Dictionaries | English, Lexico

Dictionaries, www.lexico.com/en/definition/nationalization.
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Rapier, Robert. “How Venezuela Ruined Its Oil Industry.” Forbes, Forbes Magazine, 9 May

2017, www.forbes.com/sites/rrapier/2017/05/07/how-venezuela-ruined-its-oil-

industry/#40a80b767399.

Reid, Kathryn. “Venezuela Crisis: Facts, FAQs, and How to Help.” World Vision, 19 Aug. 2019,

www.worldvision.org/disaster-relief-news-stories/venezuela-crisis-facts.

Rodríguez, Francisco. “Crude Realities: Understanding Venezuela's Economic Collapse.”

Venezuelan Politics and Human Rights, 20 Sept. 2018, venezuelablog.org/crude-realities-

understanding-venezuelas-economic-collapse/.

“Socialism.” Merriam-Webster, Merriam-Webster, www.merriam-

webster.com/dictionary/socialism.

Specia, Megan. “Five Things You Need to Know to Understand Venezuela's Crisis.” The New

York Times, The New York Times, 3 May 2019,

www.nytimes.com/2019/05/03/world/americas/venezuela-crisis-facts.html.

“World Economic Outlook Database October 2019.” International Monetary Fund,

www.imf.org/external/pubs/ft/weo/2019/02/weodata/weorept.aspx.
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