Venezuela's wrong turn - political and economic crises from government policies that oppose free market principles - Editorial

National Review, August 15, 1994

American are used to thinking of Venezuela as one of Latin America's richest and most stable countries. A democracy since 1958 and the possessor of enormous oil deposits, Venezuela has seemed an oasis during years of military rule and economic turmoil elsewhere in Latin America.

But oil revenue taught Venezuelans exactly the wrong lesson: that economics and politics should be all about the distribution, not the production, of wealth. When former President Perez (a late convert, but a valuable one) tried to adopt free-market reforms in 1989, massive rioting resulted. 1992 brought two coup attempts, led by officers whose rhetoric was more reminiscent of Benito Mussolini than of Augusto Pinochet. The coup plotters' "Bolivarian" policies amount to the sort of populist nonsense that ruined Peru's economy when its army took over in the 1970s Perez survived the coup attempts, but last year he was convicted of corruption. He is now in jail, and a newly elected president, Rafael Caldera, was inaugurated in February. He has already reversed most of Perez's reforms and in the last few weeks imposed price and foreign-exchange controls in the bargain.

The prognosis is grim. Economic crisis is very likely to produce violence. President Caldera has asked Congress for new laws allowing him to go after "hoarders" and speculators,' and already police have harried critics of the government. A few months of strikes, demonstrations, disorder, and shortages could produce another coup attempt - and the law of averages suggests that sooner or later one will succeed.

Economic crisis, hyperinflation, defeat in war, or years of military dictatorship seem to have prepared the people of nations such as Peru, Argentina, and Bolivia for the radical change represented by free-market economics. But the blessing of oil wealth turned into a curse for Venezuela, for it left the nation unwilling to change. It would be tragic if Venezuela were now to go through years of crisis before it, too, learned that wealth results from the productivity that only free markets can reward and induce. Yet, today, that is the safest bet.