Tomas Pueyo's excellent geographical and political analysis of why Venezuela ended up how it did, complete with many fun photos and charts.
The title is a reference to the 1976 book Hundiéndonos en el excremento del diablo (Drowning in the Devil's Excrement) by OPEC co-founder Juan Pablo Pérez Alfonzo, which foretold how oil would ruin Venezeula.
Tl;dr: A lot of luck followed by a genius decision in the early 20th century to invite foreign companies to build a huge number of hydroelectric dams.
These companies were legally required to employ some amount of Norwegian laborers and turn over the dams to the Norwegian government after 60-80 years of operation.
So the companies got good ROI, the Norwegian workers learned how to build and operate the dams and the country even got to keep this gigantic power source afterwards.
Oil was only discovered after Norway had already been a stable, high-GPD country for quite a while.
Today, Norway has very strict laws on how much of the oil revenue can be spent on domestic projects yearly (3%). The rest is invested abroad to avoid inflation and over-reliance on oil money.
That didn't work terribly well in earlier periods. It certainly seems to have been a good strategy since about 1600 or so, although the earliest peoples to use it successfully were probably the British and French, with Norway lagging really badly, so it's probably more a matter of proximity to the Channel Islands?
Venezuela's GDP started falling before any sanctions were put into place (2014), and kept falling before significant sanctions were added onto the smaller initial ones (2017). Having completely incompetent and corrupt communists doesn't help a nation.
The majority of Norway's population live on it's coastline, where there are good trade links with the rest of the world because the fjords make great natural harbours. For the most part the mountainous regions are desolate, midge-infested wastelands.
Meanwhile Venezuela has some large coastal cities but they aren't blessed with as many natural harbours as Norway. A significant proportion of Venezuela's population live in mountainous regions far inland, where it's not easy to build roads. For the most part the lowlands are desolate, mosquito-infested wastelands.
There are, of course, genuine left-wing populists out there, but they don’t have a very good track record of success when it comes to achieving progressive policy objectives. Many of Canada’s left-wing luminaries, like Naomi Klein and Linda McQuaig, were burned by their support for Hugo Chávez in Venezuela. The problem with Chávez was that he was an authentic populist, in the sense that he wasn’t just playing dumb, he really did reject the fancy theories of intellectuals. His response to inflation in the Venezuelan economy, and in particular to rising food prices, was to impose a set of price controls on basic commodities. In the process, he basically made entire sectors of the economy illegal. In particular, he made it impossible to sell food at anything other than a loss. People reacted by withdrawing their goods from sale, and in particular, many farmers switched to subsistence farming and stopped planting commercial crops. Millions of Venezuelans were pushed to the brink of starvation and the economy collapsed almost entirely. Approximately 25% of the population has since fled the country, making it one of the largest self-inflicted economic catastrophes of the modern era.
But the main problem is the bad ideology, not the dictator. Strongmen dictators and bad ideology almost always go together, and it is a terrible combination. But hypothetically, if there were a strongman dictator who had a really good ideology, it wouldn't be much of a problem.
I thought it was "don't defy Israel or they will lobby congress into regime change". Just take a look at the sanctions that crippled their economy and the constant fear mongering because they traded with Iran, etc.
In all of the discussions on mismanagement of the country’s resources there’s few mentions of the sanctions. And yet the sanctions were targeted on the oil exports, and the state oil company.
It seems odd to ignore a policy designed to cripple an economy when an economy is subsequently crippled.
I think the point is that the economy was already crippled. Sanctions are obviously going to do more damage, but the interesting question is how it had gotten so bad by 2018.
I don't know anything about that, but Peuyo does mention it in the comments to the article, where someone asks the same question.
I was completely unaware of the specifics when I started writing this, so I didn’t have a position. When you look into what was sanctioned and when, it’s clear the sanctions are not why Venezuela is poor.
Most of the sanctions have been on specific government officials. The first economic sanctions think was in 2016 or 2017. You can see that by then the country was in bad shit. Those sanctions were also not the type of sanctions Iran or Russia is suffering: they were simply the type “U.S. companies can’t invest in Venezuela” rather than “nobody can do business with Venezuela”.
So no, it’s not the sanctions.
I can't speak as to whether that's accurate or not.
Tomas Pueyo's excellent geographical and political analysis of why Venezuela ended up how it did, complete with many fun photos and charts.
The title is a reference to the 1976 book Hundiéndonos en el excremento del diablo (Drowning in the Devil's Excrement) by OPEC co-founder Juan Pablo Pérez Alfonzo, which foretold how oil would ruin Venezeula.
Poor old Norway, all those mountains, all that terrible soil, and all that oil.
I would be interested to see what went right in Norway
Here's a video going over the main factors.
Tl;dr: A lot of luck followed by a genius decision in the early 20th century to invite foreign companies to build a huge number of hydroelectric dams.
These companies were legally required to employ some amount of Norwegian laborers and turn over the dams to the Norwegian government after 60-80 years of operation.
So the companies got good ROI, the Norwegian workers learned how to build and operate the dams and the country even got to keep this gigantic power source afterwards.
Oil was only discovered after Norway had already been a stable, high-GPD country for quite a while.
Today, Norway has very strict laws on how much of the oil revenue can be spent on domestic projects yearly (3%). The rest is invested abroad to avoid inflation and over-reliance on oil money.
Step 1: Be Northwestern Europeans, Step 2: ?, Step 3 : Profit.
That didn't work terribly well in earlier periods. It certainly seems to have been a good strategy since about 1600 or so, although the earliest peoples to use it successfully were probably the British and French, with Norway lagging really badly, so it's probably more a matter of proximity to the Channel Islands?
They didn’t get sanctioned by the US after nationalization.
Venezuela's GDP started falling before any sanctions were put into place (2014), and kept falling before significant sanctions were added onto the smaller initial ones (2017). Having completely incompetent and corrupt communists doesn't help a nation.
Sovereign wealth funds are quite distinct from nationalization.
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What is the purpose and intended effect of sanctions? If Venezuela was doomed to fail, why not let it fail in its own?
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The purpose of US sanctions was to enforce democracy and save the Venezuelan people?
If you're not going to engage in charitable debate, don't comment at all.
substitute that with: didn't export terrorism.
Oil. Plus the things that went right for all of Scandinavia, particularly good culture and institutions.
The majority of Norway's population live on it's coastline, where there are good trade links with the rest of the world because the fjords make great natural harbours. For the most part the mountainous regions are desolate, midge-infested wastelands.
Meanwhile Venezuela has some large coastal cities but they aren't blessed with as many natural harbours as Norway. A significant proportion of Venezuela's population live in mountainous regions far inland, where it's not easy to build roads. For the most part the lowlands are desolate, mosquito-infested wastelands.
The lesson here is presumably not so much 'don't have valuable resources' as 'don't vote for communists'.
Joseph Heath is not exactly a libertarian, and only a couple of weeks before 'the events', I was reading:
https://josephheath.substack.com/p/the-prospects-for-left-wing-populism
Here's the paragraph that stuck in my mind:
There are, of course, genuine left-wing populists out there, but they don’t have a very good track record of success when it comes to achieving progressive policy objectives. Many of Canada’s left-wing luminaries, like Naomi Klein and Linda McQuaig, were burned by their support for Hugo Chávez in Venezuela. The problem with Chávez was that he was an authentic populist, in the sense that he wasn’t just playing dumb, he really did reject the fancy theories of intellectuals. His response to inflation in the Venezuelan economy, and in particular to rising food prices, was to impose a set of price controls on basic commodities. In the process, he basically made entire sectors of the economy illegal. In particular, he made it impossible to sell food at anything other than a loss. People reacted by withdrawing their goods from sale, and in particular, many farmers switched to subsistence farming and stopped planting commercial crops. Millions of Venezuelans were pushed to the brink of starvation and the economy collapsed almost entirely. Approximately 25% of the population has since fled the country, making it one of the largest self-inflicted economic catastrophes of the modern era.
A more accurate lesson is "don't vote for strongmen dictators, regardless of their professed ideology".
But the main problem is the bad ideology, not the dictator. Strongmen dictators and bad ideology almost always go together, and it is a terrible combination. But hypothetically, if there were a strongman dictator who had a really good ideology, it wouldn't be much of a problem.
Also an excellent lesson!
The lesson of Venezuela is don’t run up inequality under capitalism or the people will vote for charismatic socialists.
Well, there are probably a number of lessons, and that may well be one, but I think a lot of them end up cashing out to 'avoid communism'.
I thought it was "don't defy Israel or they will lobby congress into regime change". Just take a look at the sanctions that crippled their economy and the constant fear mongering because they traded with Iran, etc.
This. It happened in ancient rome first and will happen many more times
As if US sanctions had nothing to do
You have to believe in time travel to believe that.
In all of the discussions on mismanagement of the country’s resources there’s few mentions of the sanctions. And yet the sanctions were targeted on the oil exports, and the state oil company.
It seems odd to ignore a policy designed to cripple an economy when an economy is subsequently crippled.
I think the point is that the economy was already crippled. Sanctions are obviously going to do more damage, but the interesting question is how it had gotten so bad by 2018.
I don't know anything about that, but Peuyo does mention it in the comments to the article, where someone asks the same question.
I can't speak as to whether that's accurate or not.
Odd isn't really the word I would use. People talking about this now are engaging in targeted rhetoric.
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I suppose sanctions targeting oil trade didn’t have any effect
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There is a lot of interesting stuff in the article besides "socialism", particularly the geography stuff.