Tuesday, May 31, 2016

Venezuela: The Picture of Failed Socialism

Socialism for the Uninformed
By Thomas Sowell

Socialism sounds great. It has always sounded great. And it will probably always continue to sound great. It is only when you go beyond rhetoric, and start looking at hard facts, that socialism turns out to be a big disappointment, if not a disaster.
While throngs of young people are cheering loudly for avowed socialist Bernie Sanders, socialism has turned oil-rich Venezuela into a place where there are shortages of everything from toilet paper to beer, where electricity keeps shutting down, and where there are long lines of people hoping to get food, people complaining that they cannot feed their families.

With national income going down, and prices going up under triple-digit inflation in Venezuela, these complaints are by no means frivolous. But it is doubtful if the young people cheering for Bernie Sanders have even heard of such things, whether in Venezuela or in other countries around the world that have turned their economies over to politicians and bureaucrats to run.

The anti-capitalist policies in Venezuela have worked so well that the number of companies in Venezuela is now a fraction of what it once was. That should certainly reduce capitalist "exploitation," shouldn't it?

But people who attribute income inequality to capitalists exploiting workers, as Karl Marx claimed, never seem to get around to testing that belief against facts -- such as the fact that none of the Marxist regimes around the world has ever had as high a standard of living for working people as there is in many capitalist countries.

Facts are seldom allowed to contaminate the beautiful vision of the left. What matters to the true believers are the ringing slogans, endlessly repeated.

When Senator Sanders cries, "The system is rigged!" no one asks, "Just what specifically does that mean?" or "What facts do you have to back that up?"

In 2015, the 400 richest people in the world had net losses of $19 billion. If they had rigged the system, surely they could have rigged it better than that.

But the very idea of subjecting their pet notions to the test of hard facts will probably not even occur to those who are cheering for socialism and for other bright ideas of the political left.

How many of the people who are demanding an increase in the minimum wage have ever bothered to check what actually happens when higher minimum wages are imposed? More often they just assume what is assumed by like-minded peers -- sometimes known as "everybody," with their assumptions being what "everybody knows."

Back in 1948, when inflation had rendered meaningless the minimum wage established a decade earlier, the unemployment rate among 16-17-year-old black males was under 10 percent. But after the minimum wage was raised repeatedly to keep up with inflation, the unemployment rate for black males that age was never under 30 percent for more than 20 consecutive years, from 1971 through 1994. In many of those years, the unemployment rate for black youngsters that age exceeded 40 percent and, for a couple of years, it exceeded 50 percent.

The damage is even greater than these statistics might suggest. Most low-wage jobs are entry-level jobs that young people move up out of, after acquiring work experience and a track record that makes them eligible for better jobs. But you can't move up the ladder if you don't get on the ladder.

The great promise of socialism is something for nothing. It is one of the signs of today's dumbed-down education that so many college students seem to think that the cost of their education should -- and will -- be paid by raising taxes on "the rich."

Here again, just a little check of the facts would reveal that higher tax rates on upper-income earners do not automatically translate into more tax revenue coming in to the government. Often high tax rates have led to less revenue than lower tax rates.

In a globalized economy, high tax rates may just lead investors to invest in other countries with lower tax rates. That means that jobs created by those investments will be overseas.

None of this is rocket science. But you do have to stop and think -- and that is what too many of our schools and colleges are failing to teach their students to do.


Venezuela’s Collapse Brings ‘Savage Suffering’

By Anatoly Kurmanaev and  Maolis Castro 

Horrible hospital conditions, dying infants, chronic power outages and empty shelves mark the world’s worst-performing economy
"It feels like this hospital is under siege. We urgently need humanitarian aid.’

—Dora Colmenares, a surgeon at University Hospital of Maracaibo

 CARACAS, Venezuela—In a hospital in the far west of this beleaguered country, the economic crisis took a grim toll in the past week: Six infants died because there wasn’t enough medicine or functioning respirators. 

Here in the capital, the crisis has turned ordinary life into an ordeal for nearly everyone. Chronic power outages have prompted the government to begin rationing electricity, darkening shopping malls. Homes and apartments regularly suffer water shortages.
People wait in line to buy food in Caracas, Venezuela.  Photo:  Meridith Kohut/Bloomberg News
Rosalba Castellano, 74 years old, spent hours this week in what has become a desperate routine for millions: waiting in long lines to buy whatever food is available. She walked away with just two liters of cooking oil. 
Shortages are common at Caracas supermarkets.  Photo:  miguel gutierrez/European Pressphoto Agency

“I hoped to buy toilet paper, rice, pasta,” she said. “But you can’t find them.” Her only choice will be to hunt for the goods at marked-up prices on the black market. The government, she said, “is putting us through savage suffering.” 

The National Assembly, now controlled by the opposition, declared a food emergency on Thursday—an attempt to spur the government of President  Nicolás Maduro to, among other things, ease price controls that have created shortages of everything from medicine to meat.  

“The people are being left without the ability to feed themselves,” said lawmaker  Omar Barboza. 

Inflation in this oil-rich country is expected to hit a world’s-worst 700% this year, according to the International Monetary Fund. The economy shrank by 10% last year and is expected to decline another 8% this year, according to the IMF, the worst performance in the world. And there is no end in sight. 

Economists say Mr. Maduro’s government needs to reverse course on a decade of economic policies that dramatically reshaped the economy. The state took over hundreds of companies, instituted price controls and spent enormous amounts of public money, causing the country’s budget gap to swell to about 20% of annual economic output. 

Despite the deepening crisis, there has been little sign of change from a government that blames the country’s woes on an “economic war” waged by enemies including private firms and the Obama administration. Calls requesting comment from various government ministries and agencies weren’t returned. 

On Thursday, progovernment lawmakers said the food shortages were the fault of private companies hoarding products to try to destabilize Mr. Maduro. Later that night, the country’s Supreme Court gave Mr. Maduro special powers that allow him direct control over the budget and a freer hand in intervening in private companies. Opposition lawmakers said both moves were aimed at preventing them from trying to limit government intervention in the economy. 

In response to growing food shortages, Mr. Maduro last month created a Ministry for Urban Farming. He noted that he has 50 chickens in his own home and that his countrymen also can be taught to farm at home. The move echoes a policy Cuba implemented after the collapse of the Soviet Union in the early 1990s, which cut off aid to Cuba.

Mr. Maduro has hinted at various policy initiatives. This past week, he opened a Facebook account. “I want to expand my direct presence on social media,” he posted, adding two pictures. 

It didn’t take long for ordinary Venezuelans to respond. Some welcomed the president to Facebook. Others asked him to resign. Many asked him to investigate corruption in their cities and states. Some asked for help buying a car, or getting fertilizer, or finding food. 

José Guerra, an economist and opposition lawmaker, called it “a big absurdity for a country that’s in crisis. It shows Maduro doesn’t have his feet planted firmly on the ground.” 

With daily hardships mounting, one in 10 people are looking for a way to leave the country, according to polling company Datanalisis. More than a million Venezuelans already have emigrated over the past decade, according to many estimates. 

Leonardo Briceno said three of the four managers of his Caracas public-relations company quit to leave the country. Next week, he will become the latest departure when he moves to the U.S. with his wife and 2-year-old daughter. 

“It goes beyond the crime and economic deterioration,” he said. “It’s imagining a scenario where my daughter needs a medication and we can’t find it. That scares me the most.” 

The crisis is felt not just in Venezuela’s teeming cities but in places like Toas, a tiny island of palm trees and crystalline waters in far western Venezuela, home to just 8,000 people.

Last December, thieves stole 15 miles of underwater power cable connecting the island to the mainland. The theft severed the island’s telephone connections and idled its water pumps. 

Fisherman  Genebraldo Chacin said his children haven’t bathed or gone to school since then, and they have been eating only one meal a day. His neighbors say the island is close to starvation. 

“Our food rots without electricity, and it’s sad because it’s so difficult to find food here,” said Mr. Chacin’s neighbor,  Sasha Almarza. “When we are able to find any in the store, we eat it all the same day.” 

Venezuela’s murder rate has climbed to 90 per 100,000 residents, according to the Venezuelan Violence Observatory, a nongovernment group that focuses on crime. That would be the world’s second-highest rate after El Salvador, and far exceeds the U.S. rate of about four per 100,000. 

The plunge in the price of oil has hurt Venezuela more than just about any other oil-producing nation. Oil accounts for 96% of its export earnings and funds about half its federal budget. 

For years, the federal budget accounted for oil at $40 a barrel, even in years when the actual price was about $100. The excess money was put into an off-budget fund outside congressional oversight. It was spent, and large sums are believed to have been stolen, according to former Venezuelan government officials and investigators in the U.S. who are probing corruption. The country’s rainy-day oil-savings fund stands at $3 million, compared with funds in some other oil-rich nations that total hundreds of billions of dollars. 

Not only did the country fail to save, it borrowed heavily. It now has a foreign-debt load of about $110 billion. 

Alejandro Arreaza, Latin American economist at  Barclays,  says market data indicates Venezuela has about an 85% chance of defaulting in the next 12 months. He said he thinks the government will pay the $1.5 billion that is due Feb. 26, and will do all it can to honor the $5 billion in principal and interest payments due in October and November. To avoid a messy default and a seizure of oil assets by creditors, he said, Venezuela may have to cut imports further and possibly move to restructure its debt. 

“They already have political problems on the domestic front,” Mr. Arreaza said, “and they want to avoid opening an international front.” 

A shortage of dollars because of currency controls and declining oil revenues has hit the economy hard. Widespread nationalizations and price controls have gutted the private sector, leaving the country more dependent on imports. 

Venezuela used to export rice, coffee and meat. It now imports all three. It even imports its own bank notes, ordered from European firms and flown in on 747 jets. 

The number of private companies in the country shrank by 20% between 2006 and 2014, according to Datanalisis. Multinationals such as  Clorox Co.  have simply left. Others including  Ford Motor Co.  and Oreo-maker  Mondelez  have written down the value of their local businesses to zero.

A complicated system of exchange rates makes the country either one of the world’s cheapest or most expensive—depending on the rate used. At the official rate of 6.3 bolivars per dollar, a McDonald’s Happy Meal costs $146. At the widely used black-market rate, where a dollar fetches more than 1,000 bolivars, it costs just 89 cents. That makes the country dirt cheap for savvy travelers and those who earn dollars, but unaffordable for the poor who can’t access greenbacks. 

The crisis is especially acute in what was once a centerpiece for the socialist country, its health-care system. Medical associations and health-care specialists say preventable deaths have been on the rise because of lack of medication, equipment and doctors. The country’s leading trade group for drugstores says 90% of medicines are scarce. 

On a recent day at the University Hospital of Maracaibo, in Venezuela’s second-largest city, patients lay on bare beds in rooms with dirty floors. There was no running water, medicine, cleaning supplies or food. Feces floated in the toilets. Medical staffers there said gang members roam the halls, forcing underpaid and harassed doctors to lock themselves in the offices to avoid assaults. 

During the past week, six infants died at the Central Hospital in the western city of San Cristóbal, according to officials with the city’s child-protection services office and the union that represents hospital workers. The babies died because of a shortages of medicine and functioning respirators for underdeveloped lungs, the officials said. 

“Until the problem of a lack of supplies and imports is resolved, the neonatal situation here is only going to get worse,” said Karelis Abunassar, the child-protections chief. She said an inspection of a packed maternity ward found just 11 working incubators and seven respiratory machines, insufficient for the number of premature babies born there.

Calls to the Health Ministry weren’t returned. An administrator at Central Hospital said directors weren’t available to comment. 

—Lorena Evelyn Arraiz in San Cristóbal, Sheyla Urdaneta in Toas, Mayela Armas and Kejal Vyas in Caracas and Sara Schaefer Muñoz in Bogotá, Colombia contributed to this article.