thom w Loc: San Jose, CA

By Francisco Toro
Venezuela’s economy is a catastrophe of Dickensian proportions. And for plenty of readers, that’s hardly a surprise. Every time I write about it, dozens pipe in with some variant on the same comment: “Socialism leading to total ruin — who would’ve thought?!” The temptation to read Venezuela’s collapse as ideological comeuppance seems to be irresistible. My country, people tell me again and again, is just the end of the line on the Road to Serfdom.
There’s just one problem with all this bashing of socialism: Bolivia.
Since 2006, Bolivia has been run by socialists every bit as militant as Venezuela’s. But as economist Omar Zambrano has argued, the country has experienced a spectacular run of economic growth and poverty reduction with no hint of the chaos that has plagued Venezuela. While inflation spirals toward the thousand-percent mark in Venezuela, in Bolivia it runs below 4 percent a year. Shortages of basic consumption goods — rampant in Caracas — are unheard of in La Paz. And extreme poverty — now growing fast in Venezuela — affects just 17 percent of Bolivians now, down from 38 percent before the socialists took over 10 years ago, even as ine******y shrinks dramatically. The richest 10 percent in Bolivia used to earn 128 times more than the poorest 10 percent; today, they earn 38 times as much.
How can this be? It’s true that Bolivia has been on the receiving end of a staggering boom in natural resources for much of the past decade, as both the volume of its gas and mining exports and the price they fetch abroad jumped at the same time. Export revenue grew six-fold in the decade after Evo Morales, the charismatic hard-left president, took power, from $2.2 billion just before of his e******n to $12.9 billion at the peak of the boom.
So yes, that’s a bit like putting the game settings on “easy” when it comes to development. But it can hardly explain why Bolivia thrives while Venezuela spirals: Venezuela enjoyed an even bigger commodities boom, with exports climbing from $23 billion before the oil boom to $153 billion at its peak.
Turns out it’s not the boom itself that matters, it’s what you do with it.
Venezuela’s socialists spent the entire export windfall, and then some. Bolivia’s socialists saved much of theirs.
Venezuela ran large budget deficits every year, even as oil prices skyrocketed between 2005 to 2014. That meant the country was piling on debt even as government revenue exploded — a senseless, pro-cyclical policy that left Venezuela up a creek without a paddle when commodity prices tanked.
[It’s official: Venezuela is a full-blown dictatorship]
In the meantime, Bolivia was running budget surpluses every year between 2006 and 2014. This allowed it to draw down the public sector’s debt, which fell from 83 percent of GDP in 2003 to just 26 percent in 2014, even as Bolivia built up its international reserves dramatically, from $1.7 billion in 2005 to $15.1 billion at the end of the boom in 2014.
Turns out the difference between Bolivia and Venezuela has nothing to do with abstract ideological labels, and everything to do with fiscal prudence.
I know, I know, fiscal prudence sounds deadly dull, but it makes an enormous difference in real people’s lives. While Venezuela’s reckless socialists were impoverishing the country’s once thriving middle class, Bolivia’s socialists were creating an entirely new indigenous middle class, even spawning a whole new style of architecture along with it. Why? Because newly affluent Bolivians can afford it: Per capita GDP more than tripled from just $1,000 a year to over $3,200 over a decade. At the same time, new government social programs designed to help older people, mothers and other at-risk groups saw to major improvements in social indicators. To take just one, consider this: Thirty-two percent of Bolivians were chronically malnourished in 2003. By 2012, just 18 percent were.

The point here isn’t to idealize Bolivia’s socialists: The country remains badly governed in important ways. Corruption remains endemic in Bolivia’s public sector, with most infrastructure contracts given out on a no-bid basis to ruling-party cronies. And while nowhere near as extreme as Venezuela’s turn to dictatorship, Bolivia’s political scene has seen worrying authoritarian drift, closing down the spaces for dissent that any proper democracy needs to function.
Even the social achievements have to be taken with a grain of salt. There’s a good case to be made that poverty reduction would’ve been faster and more sustainable if the Bolivians hadn’t needlessly antagonized the private sector. As it stands, facing a sometimes hostile administration, the foreign companies that actually operate Bolivia’s mines and gas fields are working aggressively to squeeze out their deposits as fast as possible and get out, investing little or nothing on risky exploration and development.
And past performance is no guarantee of future returns. Bolivia is now clearly having trouble adjusting to lower commodity prices: Since 2015 it’s been running large deficits, drawing down its international reserves far too fast as the government resists the kind of spending cuts it will take to adjust to the new normal. Keep that up for another few years, and Bolivia could find itself on the same downward trajectory Venezuela is now on.
Still, because they kept spending under control during the fat years and drew down debt, Bolivia’s socialists have many more options for dealing with the lean years than Venezuela’s could dream of.
What’s clear is that the supposedly obvious link between socialism and economic ruin doesn’t check out. It’s not just that it’s easy to find counter examples of socialist governments that fail to set off economic collapse, like Bolivia. It’s also that catastrophe has more often than not come at the hand of committed anti-socialists. Bouts of acute economic chaos ending in hyperinflation broke out in Argentina, Brazil, Peru, and even in Bolivia itself back in the 1980s, each time under centrist or right-wing governments deeply at odds with the socialist left.
Socialism, it turns out, explains nothing about why some countries turn into economic basketcases. Instead, it muddles the debate for political ends, delegitimizing progressive policies that have often been shown to work while convincing conservatives that it’s okay when they recklessly overspend. After all, if it isn’t economic recklessness that causes economic chaos, but rather an abstract noun (“socialism”), why shouldn’t right-wingers overspend?

EyeSawYou

"The trouble with Socialism is that eventually you run out of other people's money."


Why Bolivia Is Not a Socialist Success Story

Though far from being a beacon of capitalism, Bolivia does have somewhat functioning markets, unlike nearby Venezuela.

this is an indisputable fact. When people are eating their pets to avoid starvation, something has gone horribly wrong. And while this type of horror is typical of socialist regimes that deny the sanctity of the individual, there are still many defenders of socialism who pretend that Venezuela is an outlier instead of a prime example.

And in order to brush off the overwhelming evidence that socialism ultimately leads to catastrophe, apologists also grasp for seemingly “successful” socialist regimes to cite.

The most recent example of this comes from Bolivia, which has enjoyed economic growth over the past several years. The country is run by the self-proclaimed socialist president, Evo Morales. So dedicated is Morales to this philosophy, that upon meeting the Pope a few years ago, he presented him with a “c*******t crucifix,” where Christ is depicted on a cross embellished with a hammer and sickle.

But since Bolivia’s economy has experienced a 3.8 percent growth rate over the last year, many socialists see this as airtight proof that socialism can work and that Venezuela is merely a result of mismanagement and fiscal irresponsibility on Maduro’s behalf.

However, there is much more to this story than meets the eye. When we take a closer look at this supposed beacon of socialism, we find that much of the reason it has been able to succeed is because President Morales has allowed varying degrees of capitalism to exist in the Bolivian economy. And because of these market elements, Bolivia finds itself faring far better than Maduro’s Venezuela.

The Bolivia Example
Bolivia is nowhere near as “militant” as Venezuela when it comes to enforcing socialist policies.

When we look at Bolivia’s economy, it is very important to first understand the factors that are causing its economic boom. First, natural gas plays a huge role in its economy, accounting for 45 percent of its exports. And while this resource is nationalized, it does not mean that the state is in complete control. In Bolivia’s case, the state gets to share in the profits of private companies rather than controlling the means of production outright. And while this is in no regards a free market policy, it is less socialist than the practices of the Venezuelan economy, a distinction that matters greatly.

To be sure, Bolivia has been better at managing its resources than Venezuela has. While the latter has served as a cautionary tale about what can happen if natural resources are mismanaged when resource prices drop, Bolivia’s government has seemed to be more fiscally responsible than Maduro’s. In fact, Bolivia has dramatically decreased its debt over the last several years and has kept inflation rates low, putting it in a better spot than Venezuela. But again, there is more to the story.

In a recent article called, “As socialist Venezuela collapses, socialist Bolivia thrives. Here’s why,” the author states:

Since 2006, Bolivia has been run by socialists every bit as militant as Venezuela’s. But as economist Omar Zambrano has argued, the country has experienced a spectacular run of economic growth and poverty reduction with no hint of the chaos that has plagued Venezuela.

But to be sure, this statement is simply untrue. Bolivia is nowhere near as “militant” as Venezuela when it comes to enforcing socialist policies. On the contrary, the only reason Bolivia has been able to thrive in recent years is that it has incorporated elements of a free market economy. This, in effect, puts the degree of socialism actually practiced in Bolivia far lower than that of Venezuela.

By definition, socialism is state control of the means of production. In Venezuela, between 2002 and 2012, 1,168 private companies were expropriated, or taken over by the state. In Bolivia, between 2005 and 2015, only 20 private companies had been commandeered by the government. Sure, neither of these numbers are admirable, but a lot less damage can be done to a country when it chooses socialism-lite over the full-blown variety.

True, Bolivia does have a generous welfare state, but while this may be an aspect that comes with socialism, the redistribution of wealth is only a supporting feature and not a defining characteristic of this economic philosophy. This puts Bolivia in the same camp as Nordic countries, that, while praised for being examples socialist success stories, are actually using the fruits of basically capitalist economies to fund their welfare states.

The “Informal” Market
The entrepreneur is one of the most important elements of a free market economy. And if you want to know just how tyrannical a government is, see how it treats its entrepreneurial citizens. In the case of Bolivia, President Morales has allowed the entrepreneur to create value, or rather, he has looked the other way as informal markets have sprung up—something that Venezuela’s Maduro has not done.

When consumer goods are in short supply because of state mandates, black markets always pop up to offer these items at a higher cost. This is often how starvation is avoided in the extreme cases, Lenin’s Soviet Union being a prime example. But President Maduro has done all he can to ensure that these markets are squashed.

The UK outlet The Times recently said of Maduro:

In response to the crisis, he said he was ordering price controls be imposed on 50 items deemed “essential”, such as butter, flour and ham. Those who attempt to sell the goods above government demarcated limits will face prosecution and jail, he promised. Previous attempts by Venezuela’s socialist government to impose price controls have led to scarcities and helped fuel a rampant black market.

Of course, as history has shown us, this just leads to more shortages, fewer options for consumers, and in some cases, starvation. But Maduro is not the first Venezuelan leader to crack down on the business sector. In 2010, Hugo Chavez declared that a small town butcher was a “class t*****r” for selling meat at higher prices than the government had mandated.

The butcher, Omar Cedeno, was then arrested, stripped naked, and interrogated after being charged with speculation. But his only real crime was entrepreneurship.

Cedeno commented:

I'm not a capitalist or a socialist, I'm just a worker. People are being arrested for doing their job.... I've got to cover my costs. What business doesn't? Yet eight officials came here to arrest me. It's an abuse of power.

Cedeno was allowed to go back to his shop but had to report to a tribunal every two weeks before his trial.

But the opposite is happening in Bolivia.

Speaking to this effect, Simon Wilson of Mises Wire writes:

In Bolivia, like neighboring Peru, even the poorest of the poor have the means to turn a stall into a small business and a small business into something larger. Where once his ancestors were turfed off their land and forced to work it for their colonial masters, an indigenous Indian can now open a textile factory and attain a level of wealth that surpasses that of the descendants of those who expropriated his forefathers.

Wilson continues:

A great leveling of the playing field has occurred under Evo, not through forceful redistribution of wealth, but rather through standing back and letting freedom and entrepreneurialism of the people run unchecked.

Not a Beacon of Capitalism, but Not a Bastion of Socialism, Either
To be sure, Morales is no hero of free market capitalism. But allowing elements of the free market to “breathe through loopholes,” as Ludwig von Mises put it, has allowed the country to flourish. This, of course, is coupled with the fact that Bolivia has been fortunate enough to live on land rich with natural gas, an element that should not be ignored.

But all throughout history we see that countries prosper as they move further away from socialism, and closer to a laissez-faire economy. Bolivia is no exception to this.

As Ryan McMaken writes:

As always occurs when socialism recedes, wealth increases. In the case of the Soviet Union, Lenin's limited markets never progressed beyond a very limited realm—thanks to Stalin's reassertion of centrally-planned economies. In post-Mao China, where markets were allowed to become widespread (although always heavily regulated) the Chinese economy flourished (relatively speaking) as farmers, merchants, and countless other small and medium-sized enterprises were allowed to function with relative freedom.

Bolivia is no standard of socialist success. Indeed, any prosperity enjoyed by the country is simply because degrees of free-market capitalism have survived in spite of socialism, which in Bolivia, is more rhetorical than real.

https://fee.org/articles/why-bolivia-is-not-a-socialist-success-story/

thom w Loc: San Jose, CA

Who posted this? The real eye sore can't post without screaming "liar".

EyeSawYou

Admin sent me a PM yesterday telling me to tone down the insults.

Blurryeyed Loc: NC Mountains.

Let's go for it! In Bolivia the per capita income is just under $220/month.

thom w Loc: San Jose, CA

good idea, you'll get your ideas across better without them.