Hugo Chavez Left a Sad Legacy
Media around the world have devoted a great deal of coverage to the death of Hugo Chavez, who passed away last Tuesday after losing his fight against cancer. His legacy as the President of the "Bolivarian Republic of Venezuela" needs to be seen in the light of a long tradition of populism in Latin American history.
His career followed in the footsteps of other well-known populist leaders like Juan Peron in Argentina (1946-55, 1973-74) and Alan Garcia in Peru (1985-1990). Their plans for economic development, marked by nationalist rhetoric, revolved around interventionist policies and a desire to become self-sufficient, such as massive creation of state monopolies, restrictive protectionist measures, generous business subsidies, etc.
After initial enthusiasm, the limits of economic populism quickly became apparent in all these Latin American countries, and this strategy worsened the economic situation of all, mostly that of the very people it was intended to help.
This is precisely what happened in Venezuela from the 1960s. While the country had a per capita GDP higher than that of Canada in the 1950s, it is now less than a third of Canada's, thanks to decades of populist policies.
During Chavez's rule, populism took several forms, all of which had major negative impacts on the well-being of the Venezuelan population.
On the economic front, despite the boom in oil prices that characterized his presidency, Venezuela experienced relatively modest growth and recurring budget deficits, year in year out. Excessively expansionist monetary policies led to very high price inflation, and import tariffs and price controls — paradoxically aimed at taming inflation — resulted in shortages of several basic commodities, including flour, milk, sugar and electricity.
Chavez showed little respect for property rights and for freedom in general. Between 2002 and 2012, there were 1 168 arbitrary expropriations without notice in Venezuela. Among these are all foreign oil companies, the steelmaker Ternium, the telecom giant CANTV, all cement companies, producers of rice, half a dozen retailers, etc.
For this reason, and many more, Venezuela now ranks 174th out of 177 countries in the 2013 Index of Economic Freedom of the Heritage Foundation, just before Zimbabwe, Cuba and North Korea.
Protecting freedom of the press was the least of his priorities. In 2009 alone, the licenses of 34 radio and television stations that were critical of his administration were not renewed. Chavez also controlled in part the content of information by forcing television networks to broadcast his long and frequent speeches.
Corruption also reached unprecedented levels under Chavez's rule. An article in Le Monde published in 2007 revealed that as much as $ 22 billion (out of a budget of $ 60 billion) could be used by the government without having to be accountable to anyone. The majority of these funds had apparently been diverted from the Venezuelan Petroleum Corporation.
Many argue that Chavez deserves credit for having established social programs aimed at lowering poverty. It is true that the poverty rate has been declining since 2001, thanks in large part to the billions going into government coffers from the nationalized oil industry and redistributed through these programs. But this is a typical shortsighted populist way of fighting poverty.
First, Chavez redistributed this money while adopting policies that wrecked the country's economy. He thus ensured that his countrymen would become more dependent on those schemes instead of developing a diversified and sustainable economy. It is no coincidence that many of these social programs (the so-called misiones sociales) were set up in such a way as to favor social groups that were among his strongest supporters.
Second, Chavez's expropriations of foreign oil companies, and consequent loss of specialized manpower, expertise and capital, were not without consequences for this industry, whose output has declined by one quarter since 2001. Ironically, the oil industry cash cow itself, which was a crucial tool in Chavez's ongoing quest to buy votes and remain in power, could have provided a lot more cash to redistribute had he not adopted those disastrous policies.
Many countries of Latin America have undergone market-based reforms and experienced strong growth since the financial crisis that hit the region in the 1990s. But this recurring populist tendency, also apparent today in Evo Morales's Bolivia and Rafael Correa's Ecuador, threatens to keep millions of Latin Americans in poverty for longer than they should. That, unfortunately, will be part of the sad legacy of Hugo Chavez.
Yanick Labrie is an Economist at the Montreal Economic Institute. The views reflected in this op-ed are his own.