The success of socialism

We recently noted the decision of the voters in Chilé to elect a socialist to become that country’s next President, saying:

(F)ollowing the center-right presidency of Mr Piñera, under which Chile’s economy has prospered, the voters have decided to change things. The lure of socialism has always been strong amongst poorer people, who see socialism as a way in which their station in life can be improved. Of course, the promises of socialism as far as economic development and raising the lifestyles of the lower classes have never been kept. Income inequality has often been addressed, but rather than leading to a wider sharing of prosperity, such normally makes the wealthier people — except for the connected class — poorer, but doesn’t make the poor concomitantly richer. The rewards of socialism are best exemplified by Venezuela, an oil-rich nation which is nevertheless an economic basket case.

Now, from The Wall Street Journal:

Ford Expects Major Venezuelan Devaluation in 2014
By Vipal Monga, Senior Editor, CFO Journal. | December 18, 2013, 1:53 PM ET

Ford Motor Co. expects Venezuela’s currency to lose almost half its value next year and could take a $350 million financial hit as a result.

The automotive company on Wednesday released its outlook for next year and said it expects the exchange rate to fall to 12 bolivars to the U.S. dollar from 6.3 currently.

Ford had $802 million in investments in Venezuela at the end of September, according to a filing with the Securities and Exchange Commission. The company lost $186 million in February, when Venezuela devalued the bolivar to 6.3 from 4.3.

Ford had previously expected to turn a profit in South America but now expects to only break even in the region as a result of the difficulties in Venezuela.

General Motors Co., Ford’s rival, reported earlier this year that the devaluation cost it $200 million in the first quarter.

More at the link.

We don’t hear much about Venezuela these days, now that firebrand socialist President Hugo Chavez has gone to his eternal reward,1 but the state socialist system installed by Señor Chávez remains in place, and its economic results have been nothing short of disastrous.2

Maduro’s balancing act
Adjustment and reform are economically essential but politically impossible
September 28th 2013 | CARACAS | From the print edition

It is a remarkable achievement. Amid the longest oil boom in history Venezuela has in many respects the worst-performing economy in the Americas, even though it has (it claims) the world’s biggest reserves of the black stuff and gets 94% of its export earnings from it. That is the legacy of 14 years of “21st-century socialism” under the late Hugo Chávez. Inflation is over 45% a year and supermarket shelves are bare of many staple goods. Even Nelson Merentes, the finance minister, concedes that Mr Chávez’s revolution has yet to achieve economic success. But oil revenues of $90 billion a year allow Nicolás Maduro, Mr Chávez’s successor as president, the luxury of debating whether or not to change course.

After contracting for several months, the economy grew in the second quarter. August’s inflation of 3% was half the monthly rate in May. But most economists do not believe a sustainable recovery has begun. The growth spurt appears to come from a fiscal splurge; the budget deficit is probably around 10% of GDP. A decade and a half of hyper-regulation, including ever more stringent price and exchange controls, has inflicted “terrible distortions” which will be hard to correct, even given the political will, says José Manuel Puente of IESA, a business school in Caracas.

Foreign exchange has been largely allocated by government fiat since 2003. On the black market, the dollar commands more than six times the official exchange rate of 6.3 bolivares. The government handed out more hard currency in the second quarter, which may have boosted growth. Mr Merentes is more pragmatic than his predecessor Jorge Giordani, a Utopian Marxist. Following a 32% devaluation in January there is talk of another, or even of floating the bolívar, though Mr Giordani, who is now planning minister, opposes this. Opportunists who delight in the profits to be made from graft and arbitrage, are happy to go along with him.

The government’s main response to the scarcity of food and other staples, such as toilet paper and toothpaste, is a conspiracy theory. It blames an “economic war” waged by the United States and its “fascist” allies in the Venezuelan opposition. On September 20th it sent the national guard to occupy a big toilet-paper factory. Officials said the “temporary” takeover was needed to check for irregularities in production and distribution.

More at the link. But when the Venezuelan economy, bolstered by huge oil sale revenues, still has trouble providing food and basic necessities, something is very, very wrong. The country’s huge petroleum reserves and production enable Venezuela to, in effect, import the wealth production of people outside of the country, making — in theory — Venezuela wealthier than it should be based on its own productivity.

Your Editor looks around, and he sees what the other oil exporting countries have achieved in terms of wealth. Saudi Arabia, Kuwait, and the United Arab Emirates have become fabulously wealthy, seemingly having more money than they know what to do with, and having absolutely no pretensions to socialism to weigh them down. Other oil exporting countries, like Mexico, are weighed down by more or less socialist and corrupt governments, and despite raking in billions of other people’s production, remain mired in poverty. The United States became wealthy in no small part due to the production of oil and an economy based on capitalism.

Socialism, regardless of the variations made to Karl Marx’ formulae, has produced not the sharing of wealth and productivity promised for it, but a sharing of the poverty it created. Capitalism has not made every poor person living under it prosperous, but has enabled most people to achieve a decent standard of living; socialism takes prosperity and converts it into poverty.
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  1. Perhaps Señor Chávez might have chosen more wisely than the medical care system of Communist Cuba.
  2. The last link is from the far-left The Guardian, telling readers how Venezuela is doing just fine.

5 Comments

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  2. I don’t understand, Mr. Editor. I thought socialism is a success. That’s what the Perry’s and Pho’s of the world would have us believe. So why don’t they run on true socialism? Why not stand up and shout from the roof tops how bad income inequality has become under Obama? Put a cap on how much a CEO or any other boss can make. Confiscate the property from the rich already and quit your whining. Guarantee $80,000 income for every citizen over 21 and stop screaming about “the poor”. We all know by now that guys like Perry are better qualified to determine the wages and salaries of workers than say, their employers are. It’s a matter of fairness, not productivity. Forgive tuition debt, car loans and mortgages! Give everyone free health care, force those shit head doctors to work to make everyone healthy. Tell America to quit whining every time there is a shooting in a gun-free zone and just confiscate all weapons. Why do I or Perry need a gun? They should only be in the hands of police and military and the IRS. And a-holes like Commander Phil should be sent to re-education camps to be “adjusted” and if that fails, shoot the bastards.

    We should officially change the name from Christmas to Winter Holiday so we don’t insult atheists! Easter should be forbidden. Thanksgiving transformed into Government Day therefore showing our thanks to our over lords. After all, what has God done for us lately? Everyone should be forced to drive electric cars…for the children! Sex change operations should be discussed and encouraged in schools, after all there’s nothing wrong with that.

    Teach the children about Che, Chavez and Kim, those great and Dear leaders who have taken their people to the promised land! Who gives a rat’s ass about those old, dead white men? Let’s cut the benefits to military and ex military and give them to those who deserve them…the leftist voters both alive and dead. Anything less is voter suppression. Make it mandatory to have at least one gay, one mixed couple, a handicapped person and a midget on every TV show or be fined.

    I’m sure you guys can think of more ways socialism can make each and every American totally equal. After all, there is no room for individuality, personal success or liberty when equality is the goal! Forward!

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  4. The old joke in the Soviet Union was, “We pretend to work, and they pretend to pay us.”

    Мы претендовать на работу и не претендует на то, чтобы платить.

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