Disaster Déjà Vu in Venezuela

Planning a recovery is tough in a country where an awful lot of guys with guns aren't ready to admit that socialism has failed again.

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Pick up a newspaper these days and it seems obvious that Venezuela's catastrophic experiment with socialism is at an end. With people standing in line for hours just to buy soap, annual inflation in the high triple figures (with percentages heading into four digits), and soldiers rustling goats because they're not getting fed in their barracks, Venezuela reads like a textbook example of the socialist endgame: social implosion driven by economic collapse, caused by shockingly self-destructive policy making. 

Surely, by the time local governors start saying things like "We are capable of eating a stick, or instead of frying two eggs, fry two rocks, and we will eat fried rocks" on the radio, things can't go on like this much longer, can they?

Maybe they can. Considering its galloping economic dysfunction, Venezuela's government remains relatively popular. A recent poll found 31 percent of Venezuelans think President Nicolás Maduro is doing a good job. Other polls have him a smidgen lower. (While the country is slipping ever faster into repression, reputable polling continues to be carried out and, if anything, tends to undercount the government's supporters.)

The numbers Maduro is pulling are nobody's idea of good approval ratings, granted, but he remains more popular than plenty of other Latin American leaders whose economies are doing much, much better than Venezuela's: Chile's Michelle Bachelet is at 26 percent approval, Peru's Ollanta Humala is at 15 percent, and just ahead of her ouster earlier this month, Brazil's Dilma Roussef was at 9 percent. That's the kind of number that gets you thrown out of office in South America, not 31 percent.

How can Maduro possibly have retained the support of a third of the country? The best answer is that chavismo, the political movement Hugo Chávez created and handed off to Maduro after his death in 2013, isn't really a political movement. It's closer to a kind of religious cult, with Chávez himself—whom his supporters now refer to as El Comandante Eterno—at the center of the pantheon.

La Guerra Económica
Like all good cults, chavismo has built an impregnable firewall around itself against the intrusion of inconvenient facts. Like all good cults, it has made itself central to the lives and identities of its followers. Like all good cults, it won't give up its grip easily.

Take the economic catastrophe now engulfing the country. Chavismo can't exactly deny the fact that you can't find sugar at the store—or milk, or rice, or soap, or diapers, or just about anything. As stand-up comedian Emilio Lovera puts it, Venezuela must be the only country in the world where it's considered normal for you to walk into a bread shop and ask, "Do you have any bread?" But why exactly is it that there's nothing to buy?

For chavismo, the answer is simple: la guerra económica. An unending stream of propaganda pours out of the government's sprawling media empire, beating the drums about "economic warfare": a conspiracy between local capitalists and the American CIA to discredit the socialist revolution by hoarding goods and causing financial chaos.

"Corporate media outlets throughout the world have worked diligently to portray Venezuela as a country in the midst of an economic crisis," explains teleSUR, a news network sponsored by left-wing Latin American governments, including the one in Caracas. "These outlets point to the shortages of basic goods in stores and the lines that sometimes occur for some products as evidence of this so-called crisis. Yet, these shortages appear to be part of a concerted action by members of the opposition to remove the democratically-elected government from power."

The television station goes on to announce that Maduro has helpfully explained that there is "a plot by opposition figures to take advantage of the lines to sow chaos and violence in the country." Maduro has a recording, the report claims, in which a retired general, Jose de Jesus Gamez Bustamente, reveals a plan to "bring supporters to the lines outside supermarkets and have them break windows in order to provoke looting by those waiting to enter.…This would result in repression by the Venezuelan National Guard against working-class people, the political base of the Bolivarian revolution." In keeping with standard operating procedure, no actual evidence of any sort is presented to back these kinds of grave accusations, but the impact for those on the receiving end can be deadly serious.

This is straight out of the playbook of the failed socialist states of the 20th century, the kind of thing George Orwell made a career of denouncing.

The claims are utter gobbledygook. In effect, the government doesn't have an economic theory—it has a conspiracy theory. An enormous one. The explanation for shortages and inflation amounts to alleging there's a cartel not in one product market but in every product market, an enormous, sprawling perfect scheme where tens of thousands of businesspeople coordinate seamlessly, every single one of them passing up the enormous windfall profits that would accrue to him from defection.

The point is that la guerra económica isn't really an economic argument at all: It's a spiritual one, part of a broader eschatology of socialist struggle and redemption where all the bad things that happen must, by definition, be the fault of evil conspirators, run out of Langley, bent on the oppression of the proletariat.

That price controls would cause shortages is one of the least surprising results in economics. The reason why is right there in the opening chapters of every undergraduate introduction to economics textbook anywhere in the world. Respected Venezuelan economists like Pedro Palma, the former president of Venezuela's National Academy of Economic Sciences, and Carlos Machado Allison, the country's most noted agricultural economist, sounded the alert again and again.

But chavismo long ago perfected that enormously infuriating rhetorical strategy of repurposing evidence of its own failure into a defense of its worldview. The warnings weren't just ignored; they were jujitsued by official propaganda into proof of just how sprawling the conspiracy against the government really is. And what does the government need to counter this kind of conspiracy? Why, more powers, of course! Powers Maduro has recently awarded himself, unilaterally, through an "economic emergency" decree that suspends key constitutional rights.

It's a perfect circle.

Armed and Delusional
Most Venezuelans don't buy the blather about "economic war." A recent poll by Datanalisis, a well-respected local pollster, found that 68 percent reject the argument. As the joke recently in vogue in Caracas puts it, Nicolás Maduro is so incompetent, he can't even win the wars he makes up.

The problem is that stubborn third of the population that still buys into chavismo's cult-like narrative. It's not just that Maduro defenders are recalcitrant and almost completely beyond the reach of reasoned argument—it's that they're armed. Heavily armed. Chávez himself made sure of that.

It all goes back to 2002, and an abortive coup attempt that saw much of the military rise up to depose Chávez before bringing him back to power some 48 hours later. The episode was a wake-up call to the president: He could not rely on the regular military to back him in extreme circumstances. Since then, the government has carefully nurtured a sprawling system of parallel armed groups, including a huge state-organized militia movement that's now active in virtually every city, town, and village in the country.

It's easy to mock this "Bolivarian militia" as a bunch of grannies with guns, and a May 22 nationwide military exercise (necessary because, of course, the Americans will be invading any day now) didn't do much to dispel the view that they're a motley crew very far from operational readiness. But alongside this mass movement there's a smaller, much more sinister group of paramilitary organizations: the colectivos.

These are closer to an urban guerrilla: neighborhood groups, mostly in the slums, that have essentially taken over law-and-order functions from the official police in their local areas. The government has deep ties with many colectivos, and while the relationship isn't always smooth, Maduro has already shown a willingness to turn to them to do the dirty business when protests threaten to overwhelm his forces.

The point of these civilian paramilitary structures is plain: They're there to dissuade opposition protesters, as well as any military commander who may be harboring thoughts of a coup. And they've proven wildly effective; it's hard to imagine how the Venezuelan economy could have slid this far into chaos without provoking a major violent response if not for the pro-government extremists with guns around every corner.

Of course, many of these armed Chavistas are facing the same problems obtaining basic goods as anyone else, and even their loyalty can't be entirely taken for granted. Many vaguely suspect President Maduro to have defiled the legacy of El Comandante Eterno. "Yo soy Chavista, pero no madurista," has become their watchword. There's even a Facebook group, filled with typo-ridden postings venting the fury of disillusioned chavistas disgusted with the way Maduro has leveraged Chávez's image: "how long is Nicolas going to keep PLAYING with the Comandante's body? It's enough Nicolás, let him rest in peace, for the love of God. You sully him more and more, don't you see that?"

Warsaw on the Caribbean
The colectivos may be able to slow chavismo's rate of descent, but governments don't generally survive the wholesale collapse of their economies. It's hard to tell exactly how it might all play out, but then nobody in Poland in 1988 could have foreseen exactly what would happen there over the next couple of years, either. All they could have told you, for sure, is that something had to give.

The Polish case is, actually, one that an increasing number of Venezuelan economists are revisiting. That country's economy in 1989 looked uncannily like Venezuela's in 2016: a devilish mix of high and rising inflation with pervasive product shortages, a massive state-owned sector top-heavy with loss-making firms, a huge fiscal shortfall and the looming threat of default, a chaotic forex system with multiple exchange rates creating enormous arbitrage opportunities—had there been oil under the Baltic Sea, it would be a dead ringer.

It's depressing that Poland's case turns out to be so instructive. Chavismo sold itself explicitly as "socialism of the 21st century," vowing both a heightened awareness of and a determination to sidestep the errors of its 20th century forerunners. But for all the sloganeering, Venezuela made the same mistakes in an almost stunningly predictable sequence that left the country ruined—a mirror image of the Soviet bloc a quarter-century ago.

"Centrally mandated low prices began warping everything else in the economy: supplies and productivity plummeted, lines grew longer, prices on the black market (often the only place where goods could be bought) soared higher and higher and the gap between the dollar's official exchange rate and its actual value (what it cost to buy dollars on the street) widened to ever more ludicrous differentials," journalist Lawrence Weschler wrote of the Polish morass in 1989. You can apply every last word of that to Venezuela today. Citizens are left to pick over old copies of János Kornai's The Economics of Shortages and Jeffrey Sachs' Poland's Jump to the Market Economy, as though the last 25 years hadn't happened at all. It's the macroeconomics of Rip Van Winkle.

And so all the old debates are new again: Should Venezuela aim for shock therapy or gradual reform? Is it possible to sustain political support for a transition package that could cause serious social dislocation in the short term? What is to be done about the hundreds of thousands of workers who now take home salaries from state-owned firms that lose money while doing nothing of economic value? How much reform is enough and how much is too much? And how much support is the country going to need from abroad to keep a complete humanitarian disaster at bay?

"Those are the questions," says Miguel Angel Santos, a research fellow at the Harvard Kennedy School's Center for International Development. "The colossal downward adjustment in imports the government is carrying out as we speak cannot be considered an equilibrium. To give Venezuela a jumpstart out of the crisis, the level of imports has to increase—basic staples, food, medicines, raw materials. Of course that will only increase the size of the external gap, so massive financing will be needed."

Anabella Abadi, a Caracas-based researcher, recently co-wrote a book on the history of Venezuelan price controls since 1939. Abadi stresses that the country has gone through the traumatic process of lifting controls many times in the past and has experience with both gradual and shock therapy reforms.

"Both shock therapy and managed, consensual reforms have pros and cons—neither is a silver bullet—but the political cost of lifting controls has often been high," Abadi says. "That's why imposing price reforms without a timely communication strategy or popular support becomes a breeding ground for protest and loss of confidence in the government."

They are, of course, getting ahead of themselves. The old regime hasn't fallen—not by a long shot—and the work to ensure it does remains delicate. There's an aspect of wishful thinking in running through the economic scenarios at this stage, a longing to skip over the messy political transition and focus on the desperately needed economic reforms. Maybe that's because, even as everyday activities are increasingly constrained by a failing economy and broken government, planning for a better future is one thing the government can't stop Venezuelans doing.