The devastating Venezuelan crisis

The Venezuelan crisis is filling the headlines and truly deserves the world’s attention. It is a wake-up call to all as it holds relevant lessons for both developing and developed countries. The country suffers a severe humanitarian crisis. Its economy has declined at a faster pace than any other peacetime economy worldwide. Hardship and repression have led millions to flee the country creating a refugee crisis in Colombia and other neighboring countries, and millions more are expected to flee unless conditions improve. It raises serious security concerns in the whole Western Hemisphere. The country of Venezuela sits on and owns the largest oil reserves in the world. Oil helps explain the “rent-seeking” behavior that is at the root of this crisis. (“Rent-seeking” is simply getting money from the government for the oil it sells and giving little or nothing back to the government in return. -EEd) However, oil cannot be blamed for this crisis – it helped Venezuela get out of the poverty trap and become a modern democratic society in the 20th century. This crisis comes from the perverse combination of bad politics, bad policy, and corruption that besieged the country over the last 20 years. Since he was elected in 1998, Hugo Chávez paved the way to authoritarianism while making the economy more vulnerable to the ups and downs of oil prices. Chávez died in early 2013. When Nicolás Maduro, his anointed heir, was elected to succeed him, the economy was in bad shape and institutions were already weak, but problems had been papered over thanks to high oil prices and the money the government made from its sale. When oil prices were high worldwide, Venezuelan governments did not save money for possible future economic losses. When oil prices began falling in 2014 and threatened the money from “rent-seeking” by many Venezuelans, Maduro chose the road to overt authoritarianism instead of seeking to restore the basics of an open society and a prosperous economy: the rule of law, property rights, transparency, prudent fiscal and monetary policy, and essential public goods such as education, health, housing, transportation, and infrastructure. This paper is a brief history of how the present Crisis in Venezuela developed and how it can be reasonably resolved. The Venezuelan people are suffering. There are lessons here for everyone in the world (A Venezuelan and James Ausman).