Above Photo: ruurmo / Flickr
As the United States begins its effort to depose Venezuelan president Nicholas Maduro, the discourse is plagued by the perennial question: what is socialism? Venezuela helps illuminate this question because many pundits commit to the claim that Venezuela is socialist before committing to a specific definition of socialism. This unfortunate order of events then requires them to retroactively identify specific things that they say make Venezuela socialist, but then those things exist in other countries that they refuse to call socialist.
The weekend provided two prime examples this. To start things off, Bryan Caplan wrote, in reference to those claiming Venezuela is not real socialism, that:
“That’s not real socialism” is a perfectly reasonable claim. For example, Denmark, Sweden, and Norway aren’t real socialism. That’s why they’re not disasters.
— Bryan Caplan (@bryan_caplan) January 26, 2019
Caplan does not elaborate on how he distinguishes the Nordic countries from Venezuela or even what he considers socialism. But anyone who objectively compares especially Norway to Venezuela would find the two countries are quite similar and that in fact Norway is far more socialist under conventional definitions of that term.
Venezuela and Norway both have abnormally large oil sectors, nationalized oil reserves, and nationalized oil companies.
In Norway, the surplus from the oil boom has been used to build a $1 trillion collectively-owned capital fund with the return on that capital going to finance general government spending, including the country’s large welfare state. This capital fund is even colorfully described by the Norwegian government as “the people’s money, owned by everyone, divided equally and for generations to come.”
In Venezuela, the government appears to have used the surplus primarily to finance current social spending. This means that, on the thing most remarkable about the two countries, Norway comes away as more socialist. Norway uses its oil sector to build an enormous stock of collectively-owned capital, which then goes to fund social spending while Venezuela skips the middle step. Insofar as socialism is about collective ownership of the means of production, an objective observer would have to declare Norway the more socialist of the two.
Norway’s edge on Venezuela goes beyond the different ways the two countries have handled their nationalized oil sectors. Although Venezuelan data is a bit hard to come by, it is hard to imagine based on what information we do have that the Venezuelan government owns one-third of the country’s domestic corporate equity like Norway does. And the Venezuelan government for sure does not own 60 percent of the national wealth like Norway does. Even on indicators that are not strictly socialist but that people often conflate with socialism — such as government taxes, revenue and expenditure — Norway dominates.
Although Caplan does not elaborate on what he thinks is especially socialistic about Venezuela, Bret Stephens does. And his take on this front is so bizarre that it seems to suggest the United States is socialist or at least nearly socialist.
That’s more than can be said for some of Chávez’s erstwhile defenders, who would prefer to forget just how closely Venezuela followed the orthodox socialist script. Government spending on social programs? Check: From 2000 to 2013, spending rose to 40 percent of G.D.P., from 28 percent. Raising the minimum wage? Check. Nicolás Maduro, the current president, raised it no fewer than six times last year (though it makes no difference in the face of hyperinflation). An economy based on co-ops, not corporations? Check again. As Naomi Klein wrote in her fawning 2007 book, “The Shock Doctrine,” “Chávez has made the co-ops a top political priority … By 2006, there were roughly 100,000 cooperatives in the country, employing more than 700,000 workers.”
The first claim here is that Venezuela is socialist because its government spends 40 percent of GDP. By this measure, almost every country in Western and Northern Europe is socialist, including Denmark, Finland, Sweden, Norway, France, Belgium, Germany, Austria, Netherlands, and the United Kingdom. Even the US government spends 37.7 percent of GDP. On Stephens’ view, the US is apparently just 2.3 points shy of socialism!
The second claim here is that Venezuela is socialist because the government raised the minimum wage six times in the last year in the face of high inflation. This is initially confusing of course because presumably Stephens believes it was a socialist country before last year. But it is also more fundamentally confusing because lots of countries have minimum wages and adjust them over time based on inflation. The US established a minimum wage under FDR and has adjusted it upwards more than a dozen times since. Some US states even have minimum wages that are indexed to inflation, meaning they get adjusted every year.
The last claim is that Venezuela is socialist because it has worker cooperatives, specifically 100,000 cooperatives employing more than 700,000 workers. The first thing to note here is that 700,000 workers in cooperatives is not that impressive up against a country with a population over 30 million people. But more importantly, the US also has worker cooperatives, most prominently ESOPs. In 2015, there were 14 million US workers in ESOP companies and ESOPs are directly encouraged by the US government via tax breaks.
If government spending of around 40 percent of GDP, a minimum wage, and a small coop sector equals socialism, then Americans live in socialism every single day.
What happened in Venezuela?
Unfortunately I am not an expert on Venezuela, unlike every US pundit who suddenly became very knowledgeable about the country this week. So I try to avoid making claims about its development and trajectory. But from what I have read and looking at some reliable figures that do come out of the country, what seems to have happened is that Venezuela (like Norway) had a relatively large oil export sector. When oil prices plunged a few years ago, the value of its oil exports shrank, and thus its overall economy shrank rapidly. The government then printed money to fill the gap, setting off the classic hyperinflationary spiral that, once started, is hard to reverse.
It does not help of course that subsequent US sanctions further constricted the country when it was already struggling. But it seemed to have been in big trouble even before the sanctions came on.
None of this has to do with socialism. As noted already, Norway has a very similarly composed economy, but was able to ride out the oil price drop with less devastation (though it suffered some too). This is because it uses its oil surplus to build a huge capital fund rather than on current spending. When that surplus evaporates due to an oil price drop, Norway does not face any immediate crises and can even draw down the capital fund some (as it did) to fill the temporary gap. Had Venezuela managed its oil sector similarly, we would not even be having this discussion.