Why is Venezuela in Dire Straits? | Scott T. Patrick

Reproduced from: https://twitter.com/PompeiiDog/status/1091747927016513537

Scott T. Patrick

PhD in political science. Aspiring academic. Interested in Marxism, global political economy, social revolutions, and Western imperialism.

Washington, DC

I’m going to do thread on Venezuela’s economic history to try and dispel some of the myths going around that the present crisis is due to socialism. Actually, colonialism, US imperialism, and neoliberalism are far more important factors for why Venezuela is in dire straits.

Colonial Venezuela was defined by an encomienda system producing tobacco, cotton, indigo, and cocoa. Indigenous peoples were essentially enslaved to work huge plantations for white overlords, much like in the Caribbean or the US South.

Just as today, countries that only produce raw commodities are highly dependent on volatile commodity prices. Many former colonies, like Cuba, were locked into producing a single profitable export (like sugar) and their economies were never diversified.

The Spanish crown abolished the encomienda system in 1687 and black slaves were used instead of locals. The fortunes made in Venezuela from cacao—produced by applying whips to African bodies—were invested in new plantations, mines, and more slaves, NOT institutional capacity.

Even after independence Venezuela remained an agriculture-exporting country chained to the boom-and-bust of coffee and cacao prices. The two products created the capital that led to the rise of a domestic bourgeoisie, made fat off the continued economic exploitation.

In 1922, oil was discovered in Venezuela, and oil has reigned economically without interruption ever since. Venezuela’s dictator Juan Vicente Gómez permitted U.S. oil companies to write Venezuela’s petroleum law. Thus the country came to be central to the U.S. demand for oil.

In 1957, more than half of Standard Oil’s global profits came from its Venezuelan affiliates; in the same year Shell’s Venezuelan affiliates accounted for half of Shell’s world profits. These corporations funneled a torrent of petroleum and dollars into the U.S. and Europe.

By the 1970s Venezuela was producing 3.5 million barrels of petroleum to run the U.S.’s industries, but four-fifths of the concessions owned by Standard Oil, Shell, Gulf, and Texaco were untouched reserves and over half the value of the exports never returned the country.

“The profits milked from this wonderful cow, in proportion to capital invested, are only comparable with those obtained by old-time slave merchants and pirates.” — Eduardo Galeano, Open Veins of Latin America, on U.S. multinationals’ exploitation of Venezuelan oil

“Here you have freedom to do what you like with your money; for me, this freedom is worth more than all political and civil freedoms put together.” — U.S. businessman in Caracas, 1953 (quoted in Galeano)

Again, as with many former colonies, Venezuela’s internal market was weak because most people remained poor and uneducated. The ability to develop their own advanced manufacturing industries was therefore limited; more commonly, the wealthy elite imported U.S. finished goods.

In the 1970s, Venezuelan liberals succeeded in building up state institutions (finally!) to direct some of the crumbs left behind by U.S. companies to things like education, health care, etc. The Arab oil embargo of 1973 led to an oil bonanza for “Saudi Venezuela.”

Middle class Venezuelans routinely traveled to Miami on the weekends in the 1970s, becoming famous for the saying, “Esta barato. Dame dos” (“It’s cheap. Give me two”). Still, for the much larger poor working class, they remained mired in poverty, with some crumbs from oil riches.

In the 1980s oil prices fell and revenue fell from $20 billion in 1981 to $11 billion in 1983. The bolivar was devalued and its free market rate tripled. Unemployment doubled. External debt was over $30 billion. Venezuela entered the “Lost Decade.”

One example of elite corruption and misuse of public funds was the RECADI scandal, where Venezuela’s wealthiest citizens could buy dollars at preferential rates through a currency exchange system and then covert the (much more valuable) dollars into bolivars at a profit.

In 1989 President Carlos Andrés Pérez accepted $4.5 billion from the IMF for adopting the “Washington Consensus,” i.e. unfettered free-market capitalism. While elites had robbed the country blind it was the working class who suffered. Riots known as the “Caracazo” erupted.

It was the 1989 riots and the subsequent murder of hundreds (perhaps thousands) of rioters that really killed the old prosperous, stable Venezuela. No longer would the more numerous poor enable the elites to live like parasites. Soldiers who fired on civilians became rebels.

In 1994 Venezuela elected Rafael Caldera, a former president from the early 1970s, on the promise he would undo Perez’s neoliberal reforms. He lied. Inflation was the highest in Latin America (sound familiar) and by 1996 he introduced even more economic “shock therapy.”

Caldera enlisted the support of former Marxist guerilla (no joke) Teodoro Petkoff who became his Minister of Planning. The new economic program, “Agenda Venezuela,” was cheered by Wall Street, but inflation only jumped again to 103% in 1996. Economic woes continued.

By the end of the 1990s 78% of Venezuelans lived in poverty. Despite possessing the largest proven oil reserves outside the Middle East, the country had seen its living standards crash. Crime was rampant. Neoliberalism had destroyed what little welfare state existed.

So total was the discrediting of the status quo that in 1998 the two party system that had dominated Venezuelan politics collapsed. The original frontrunner was a former beauty queen, but the winner was Hugo Chavez, a military officer imprisoned after a 1992 coup attempt.

Chavez had disdained elections despite his popularity because he did not believe he stood a fair shot in an unfair two party system. But the old liberal order had lost legitimacy. He won on a pledge of 1) dismantling the two-party system, 2) fight corruption, and 3) end poverty.

In 2000 (quite independent from Chavez) oil prices soared, helping to lift the Venezuelan economy. The price of a barrel of crude oil, long ~$25, hit $30 in 2003 and climbed to $60 by 2005. This windfall supplied Chavez with the funds to raise the standard of living in Venezuela.

To be clear it is *undisputed* that the Chavez regime in Venezuela had a net positive on human development in a country that, while stable and prosperous, had until the 2000s many masses wallowing in extreme poverty. This is often not mentioned in recalling Venezuela’s past.

Despite the oil boom Venezuela remained unstable . In 2002 the conservative opposition attempted to seize power, suspending the new constitution and using private media to spread propaganda. The US was also tied to the coup. In the end, Chavez was reinstated by his supporters.

The 2002 coup attempt preceded a general strike (“paro cívico”) as conservative politicians and business interests attempted to force Chavez out. As with the coup attempt, the effort fizzled out due to lack of popular support, but not without doing huge damage to the economy.

Simultaneously, Venezuela was hit with intense capital flight, because left-wing politics make the markets sad. Without foreign investment or the technology and expertise provided by multinationals, Venezuela became even more dependent on its oil income.


To recap so far: Hugo Chavez in 1998 inherited a ex-colony whose institutions were still centered around capturing profits from rents and funneling it to elites at the expense of the poor WHICH HAD ALSO been driven off a cliff by IMF-imposed “shock therapy.” So there’s that.

To blame Chavez for extensive corruption and lack of a robust, diversified economy only makes sense if you believe he possessed time travel technology to somehow go back and prevent the Spanish plunder of the Americas. I mean, if he did… whatta jerk for holding out on us!

But more importantly… Yeah, Venezuela is unstable because it’s society has been in crisis *since 1989* because, as the history of France or Russia will tell you, a ruling class can only drive its underclass into deprivation for so long before your society breaks down.

In a way the 2002 coup attempt and general strike are the playing out of social tensions long unresolved in Venezuela society, as are the protests we see today. What isn’t natural is the US and the OAS putting the thumb on the scale for the Venezuelan right. That’s imperialism.

Chavez tried to keep a strong bolivar but this led to huge distortions in trade; by 2008 Venezuela only exported oil but imported pretty much everything else, even staples like food and medicine. The result was that Venezuela was especially exposed to a huge drop in oil prices.

After Chavez died in 2013 Maduro took over and was faced with plummeting oil prices. He has also had to fight an “economic war” as the US and its allies seek to isolate it economically and, increasingly, to foment greater political dissent.


Now the US is basically using its economic and political power to prevent Venezuela from getting money from its only major export, oil. The West once plundered the country for its wealth and now it holds that wealth hostage from the people entitled to it.


As we all know, the new sanctions against Venezuela come after Maduro’s agents murdered a well-known journalist and critic of the government, which was caught on audio… Wait, I’m thinking of our other major oil supplier, Saudi Arabia. We don’t sanction them. We sell them jets!

Around 100 years ago oil was discovered in Venezuela, starting extensive exploitation by U.S. oil companies. Way more money was plundered than was reinvested. Western imperialism there goes back 500 years. Yet we are meant to believe Venezuela’s history only goes back 20 years.