US sanctions against Venezuela are barbaric and immoral. But, they are not responsible for the economic collapse that has transpired in Venezuela over the past twenty years. Yes, the sanctions have further reduced the standard of living in Venezuela, and the burden of relative impoverishment caused by the sanctions has fallen hardest on those at the lowest end of the socio-economic ladder.
However, the effects of these US-imposed sanctions have not been nearly broad enough to be responsible for the general collapse of economic conditions that we now see in that country.
It is important to make this distinction because defenders of Venezuela’s socialist economic policies have repeatedly attempted to claim that sanctions are the primary reason for the country’s economic collapse.
Breaking Away: The Cas...
Buy New $12.00
(as of 01:30 UTC - Details)
Why do the socialist apologists claim this? It’s so they can make the case—as socialists are always eager to do—that socialism would be a boon for everyone’s standard of living if only it weren’t for the interference of foreign states like the US.
The truth, however, is that socialist policies like those practiced in Venezuela—widespread expropriation of private businesses coupled with vast wealth redistribution and government dominance of major industry sectors—are more than enough to destroy any polity’s economy. It is not necessary for Washington to intervene.
Why They Blame Sanctions
Nonetheless, the tactic of blaming the poverty of socialist states on outsiders is a well-worn tactic. This tactic was repeatedly used to explain why the socialist economy of the USSR had not surpassed the economies of the wealthy West. For example, the economic collapse of the Soviet Union was blamed on a variety of causes ranging from the arms race to falling oil prices to bourgeois saboteurs. The Cuban regime, meanwhile, which impoverished its population with disastrous central planning, pretended that the US semi-embargo was to blame for the country’s lack of economic development.
It is true that the collapse of oil prices in the 1980s contributed to the decline of the Soviet economy. But, it is also true that oil-producing market economies were subject to the same problem. Yet, those market economies weathered the shock far better. Similarly, it is true that the Soviets devoted a growing share of their GDP to the arms race with the West, which meant fewer resources were then available for domestic uses like the production of household goods and services. The Americans spent huge sums on the arms race as well. Yet, because it had a relatively free economy, the US could easily afford its (needless) obsession with spending ever larger sums on weapons.
Similarly, the Cuban economy’s woes were primarily driven not by the US quasi-embargo, but by the Cuban regime’s refusal to liberalize trade and investment with the dozens of wealthy countries that had open relations with the Cuban economy.
None of this suggests that US sanctions against Cuba were ever justified. They weren’t. Nor was US participation in the US-Soviet arms race ever wise or necessary. The fact remains, however, that the poverty experienced by the resident victims of socialist regimes is overwhelmingly the result of the policies of the domestic regime—and is not due to the policies adopted by the US regime.
What Caused Venezuela’s Collapse
It is certainly true that the Venezuelan economy is not socialized or centrally planned to the same degree as the Soviet or Cuban economies. However, over the past twenty-five years, the Venezuelan regime has repeatedly ratcheted up the degree to which it intervenes in the private economy, often going so far as to steal millions of hectares of land and expropriate hundreds of private businesses.
The current frenzy of expropriation and economic central planning began in the early years of the Hugo Chavez regime when the state began a campaign of expropriating banks, foreign-owned firms, and domestic farms. These thefts were then used to fund massive wealth redistribution schemes for purposes of buying votes and shoring up political support from allies.
These policies continued under Chavez’s successor Nicolas Maduro and, not surprisingly, the economic chaos led to a collapse in domestic saving, investment, and economic output overall.
Moreover, these repeated attacks on the private sector made the Venezuelan economy even more dependent on the oil sector, and this “de-diversification” of the economy has made the domestic economy even more fragile. The Venezuelan oil sector—which is state-owned—has also been rife with corruption which has led to under-investment in necessary infrastructure and capital. Not surprisingly, Venezuelan oil output has collapsed, further crippling the economy.
It is important to note, however, that all this happened before the Trump administration imposed its 2017 sanctions on Venezuela and the country’s oil sector.
As Dani Fernandez put it in April of 2017:
Venezuela is undergoing the typical collapse of a country that has been subject to years of all kinds of political interventions. The fall in oil price is the external shock that brings to light the embarrassing result of years of price controls, currency controls, nationalizations, uncontrolled monetary creation, and economic dirigisme.
The economic imbalances that had accumulated over the years were hidden under the influx of dollars that incidentally came from oil revenues that grew in value, and not in volume. Lack of investment and low productivity per worker are the usual trend for Petroleum of Venezuela (PDVSA). The ability to increase production in order to counter the fall in oil price is zero.
In 2019, after two years of the Trump sanctions, it was still clear that sanctions were not the root cause of Venezuela’s woes. A Brookings Institution report concluded in May 2019:
No matter what socio-economic indicator one chooses to look at, it is clear that the sharp deterioration in Venezuela’s living standards started long before August 2017. The further deterioration observed since 2017—whether caused by the sanctions or by alternative factors—by no means constitutes the bulk of the collapse that has caused widespread suffering, death, and displacement to millions of Venezuelans.
Yes, it is true that oil production in Venezuela has been affected by US sanctions, but recent declines also reflect ongoing problems in the industry that date back twenty years. After all, as the Brookings report points out, “Venezuela’s daily output of oil declined by 24 percent between 2005 and 2016.” This was driven by Venezuelan—not US—intervention in the industry.
Anatomy of the State
Best Price: $5.00
Buy New $5.82
(as of 05:45 UTC - Details)
The Tragedy of Sanctions
The Venezuelan economy has never recovered from these crises, and Washington’s sanctions no doubt share some blame for this. However, it is also undeniable that the policies that have crippled the Venezuelan economy in recent decades have been overwhelmingly self-inflicted.
The US sanctions strategy is based on the premise that sanctions will trigger widespread opposition to the targeted regime as the sanctions impoverish the local population. At least, that’s the publicly stated goal. If that is the true goal, it has repeatedly failed everywhere it has been tried, including Iran, Russia, Cuba, and elsewhere. This makes the US government’s sanctions policy all the more immoral and disastrous. The people of Venezuela, already victimized by their own government, are further cut off from goods and services by the US regime which could have chosen to simply mind its own business and not meddle in Venezuelan affairs. After all, contrary to US state propaganda, the Caracas regime presents no credible threat to the United States or its people.
Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
