How Venezuela Can Learn from Its Past

Venezuela has suffered from economic crises for over 40 years, and this suffering should be an example of the horrific consequences of Marxist ideology in any form it attempts to take.  With the most repressed economy in the world—besides Cuba and North Korea—according to the 2024 Index of Economic Freedom published by the Heritage Foundation, Venezuelans must start from zero to rebuild the economy.  What are the best policies for economic growth?  Luckily, there is plenty to learn from Venezuela’s history to identify fruitful economic policies.  After two decades of reform attempts in the 1980s and 1990s, the last one, Agenda Venezuela, is promising.  This reform was a success we can learn from.

After two decades of failed experimentation in economic reform, known as the Ax-Relax-Collapse Reform Cycle, Venezuela became a large producer of poor people (Corrales, Escobar).  In 1996, President Rafael Caldera implemented Agenda Venezuela, which was the last reform attempt before the beginning of Venezuela’s current authoritarian socialist chapter.  The agenda’s goal was to restore stability.  Under the agenda, the country would embrace free markets and promise to live within its means (Escobar).  President Caldera declared, “We aspire to a free and competitive economy” and announced that his administration would privatize what was necessary (Brooke, Venezuela Proposes Opening Oil Industry to Private Investment).  Venezuela finally appeared to have some hope of pulling itself out of the cycle of incessant economic collapses.

The plan comprised harsh but necessary cutbacks and adjustments in several areas.  The sales tax went up, and so did gasoline prices, which went up by 382 percent from 0.11 USD/gallon at the end of 1995 to 0.52 USD/gallon at the end of 1998 (Venezuela Gas Price by Year).  The government would cut the bloated bureaucracy, trimming the federal workforce of 1.3 million people, and sell off state-owned industries including the aluminum industry, the domestic airline Aeropostal Alas de Venezuela, and government shares in the newly privatized telephone company Compañía Anónima Nacional Teléfonos de Venezuela (CANTV), which estimated to bring in $1.5 billion in government revenue.  Furthermore, this agenda annulled exchange rate controls and price controls, increased salaries, and incentivized investment, a major boost for economic growth.  Abolishing price controls is always a good step because when prices are held below natural levels, resources such as talent and investor capital leave an industry to seek a better return elsewhere, which leads to less discovery and innovation, and fewer new products become available to consumers (Scott Morton).  These measures were drastic, but drastic circumstances call for drastic measures.

Due to the privatization of CANTV in 1991, by June 1995, the new American managers increased the number of lines by 50 percent, doubled international circuits, quadrupled the number of working pay phones, and brought the average wait for dial tone down to three seconds (Brooke, INTERNATIONAL BUSINESS).  Additionally, Brooke explains that, although CANTV had to slash its capital investment plan by 40 percent, to $408 million in 1995, their investments were projected to total $2.4 billion for the first four years of private operation, “10 times the $239 million invested during the last three years of public ownership.”  This privatization proved successful, turning CANTV over to efficient, investment-boosting private management.  This efficiency is demonstrated by the expansion of functional service and the sharp increase in customer satisfaction of 80 percent in 1995 as opposed to a mere 30 percent under inefficient government management before privatization four years earlier.  However, despite these accomplishments, investors did not seem willing to invest in the privatized company, leading to the suspension of the planned sale of government shares (Brooke, INTERNATIONAL BUSINESS).

Did Agenda Venezuela achieve its goal of restoring stability?  El Universal exclaims, “the figures speak for themselves.”  While in 1994, the economy contracted by 2.3 percent, in the first year of implementation, the economy grew by 1.3 percent, followed by astounding growth of 7.8 percent in 1997 and 7.6 percent in 1998.  Petroleum production increased by 700,000 barrels per day from 2.63 million in 1994 to 3.33 million in 1998, with a five-year average price of $13.65 per barrel.  The income per inhabitant grew $252 from $12,344 (1994) to $12,596 (1998), and non-traditional exports reached a historic high of $7.2 billion in 1998.  International reserves climbed sharply from $9,723 million in 1995 to $17,818 million just two years later.  Although inflation was high, it began to decrease due to investment increases, production, and exports (Grisanti).  This agenda led to many positive changes that yielded outstanding and encouraging results.  It needed much more time to have its full effects.  Additionally, with a serious diversification of the economy from petroleum, as proposed by the Central Office of Coordination and Planning throughout the 35 years after its creation in 1959 (Bello et al), Venezuela would be on its way to international economic leadership and competition among modern western democracies.  Venezuela held that position in the 1950s when the country, although not democratic, had the fourth largest economy in the world and was growing rapidly in energy and industry; Venezuela became the second-highest capacity country in South America in electric generation in 1959 from the lowest capacity country in the region just nine years before (Desjardins, Bello et al).  Without a doubt, the agenda implemented wise and effective economic decisions, and their effects were a success in creating amazing economic growth and leading to stability in just those three years of implementation.

Venezuela can learn from the success of this reform.  The free market lifts an economy and all who live in it.  Privatizing government-owned businesses, severely cutting bureaucracy, and deregulating currency and market prices, as Agenda Venezuela did, would rebuild the Venezuelan economy and lead to massive growth and prosperity.  It happened once; it can happen again.

Works Cited

Bello, Omar D., et al. “Venezuela’s Growth Experience.” Latin American Journal of Economics, vol. 48, no. 2, November 2011, pp. 199-226. http://dx.doi.org/10.4067/S0719-04332011000200005. Accessed 16 January 2020.

Brooke, James. “INTERNATIONAL BUSINESS: Yankees, Phone Home!; GTE Role in Venezuela Is Warning on Privatization.” The New York Times, The New York Times, 21 June 1995, https://www.nytimes.com/1995/06/21/business/international-business-yankees-phone-home-gte-role-venezuela-warning.html. Accessed 15 January 2020.

Brooke, James. “Venezuela Proposes Opening Oil Industry to Private Investment.” The New York Times, The New York Times, 28 April 1994, https://www.nytimes.com/1994/04/28/world/venezuela-proposes-opening-oil-industry-to-private-investment.html. Accessed 15 January 2020.

Corrales, Javier. “Venezuela in the 1980s, the 1990s and beyond.” ReVista Harvard Review of Latin America, David Rockefeller Center for Latin American Studies, 1999, https://revista.drclas.harvard.edu/book/venezuela-1980s-1990s-and-beyond. Accessed 14 January 2020.

Desjardins, Jeff. “Venezuela was once twelve times richer than China. What happened?” World Economic Forum, World Economic Forum, 12 September 2017, https://www.weforum.org/agenda/2017/09/venezuela-was-once-twelve-times-richer-than-china-what-happened.

Escobar, Gabriel. “Economic Crisis Bends Venezuela into Hemispheric Conformity.” The Washington Post, The Washington Post, 5 May 1996, https://www.washingtonpost.com/archive/politics/1996/05/05/economic-crisis-bends-venezuela-into-hemispheric-conformity/3a37ef45-b951-425b-b27c-60717b774ef5/. Accessed 14 January 2020.

Grisanti, Luis Xavier. “Petkoff y la Agenda Venezuela.” El Universal, El Universal, 16 November 2018, https://www.eluniversal.com/el-universal/25753/petkoff-y-la-agenda-venezuela. Accessed 14 January 2020.

Scott Morton, Fiona M. “The Problems of Price Controls.” Regulation, vol. 24, no. 1, Cato Institute, 20 June 2001, https://www.cato.org/publications/commentary/problems-price-controls. Accessed 14 January 2020.

“Venezuela Gas Price by Year.” Multpl, World Bank, https://www.multpl.com/venezuela-gas-price/table/by-year. Accessed 18 January 2020.

“2024 Index of Economic Freedom.” The Heritage Foundation, The Heritage Foundation, 2024, https://www.heritage.org/index/ranking. Accessed 4 December 2024.