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The Staggering Inequality of Venezuela

The Staggering Inequality of Venezuela

In developed nations people tend to discuss the political economy of their countries in the following way. When they think about capitalism, they associate it with economic freedom, and therefore, with higher opportunities to climb the socio-economic ladder. On the other hand, defenders of socialism see their system as a way to achieve greater economic equality and material stability. Hence, socialism would ideally allow people to enjoy life beyond work. Therefore, in these discussions, there is an implicit trade-off between more opportunities and a more generous welfare system. In other words, the question of whether we should prioritize freedom over equality or vice versa.

I find this vision problematic, in the sense that it cannot explain socialist countries like Venezuela. At least in my country, years of socialism did bring many things, but economic equality was not one of them. Socialism brought us chronic and widespread shortages of essential food, such as bread, corn oil, and milk. It brought us daily power blackouts, and similarly, crumpling hospitals, politicized schools, and a collapsing industrial sector. But it did not bring us equality. In fact, it widened inequality dramatically.

I will use our newest crisis as an example of this. Currently, Venezuela is undergoing a chronic shortage of fuel due to years of severely mismanaging its state-owned oil industry. The Maduro regime is trying to solve this crisis by partnering with Iran, a country that sent five vessels a couple of weeks ago with fuel. This allowed Maduro to create a new supply mechanism last week. A dual system that includes subsidized and dollarized fuel stations. The former supposedly allowing each person to put up to 120 liters per month at a subsidized price, while the dollarized stations sell fuel at half a dollar per liter.

To make the story short, the dollarized stations are inaccessible for the budget of virtually all Venezuelans. And the "subsidized" stations quickly became niches for corruption, condemning people to endless lines of cars waiting for fuel. Therefore, this solution ended up only giving gasoline to people with political connections and fat wallets. Whereas the vast majority of the country will not be able to use their cars for a very long time. 

This is what I mean when I say that socialism did not address but rather exacerbated inequality in Venezuela. In another example, our country has had strict currency controls since 2003, allowing the government to decide who has access to foreign currency. Because of it, while virtually all Venezuelans have lost their life savings due to the rapid devaluation of the bolivar, a currency that has been experiencing hyperinflation since October 2017. Politically connected Venezuelans are financially protected, as they have been acquiring dollars at subsidized rates for years.

Precisely because of this, a lady told me a few days ago: "Jorge, in Venezuela, there are first-class and second-class citizens." And she is right. I already gave two examples of it. But I could also do the same with multiple aspects of daily life in Venezuela. In our country, public goods ceased to exist, making them inaccessible for most citizens. Currently, millions of Venezuelans suffer from daily power blackouts, meanwhile the elites have power plants in their houses. The same logic applies to water access, healthcare, education, and other public goods. Because of it, no Venezuelan would say that their country is more equal now than a generation ago. 

Moreover, the problem is not just the widening of the gap. It is also what caused the widening. Market economies are built upon institutions that encourage productive activities, such as the creation of products that make people's lives more comfortable, more productive, or both. Therefore, even though market economies promote inequality, they reward people for improving the lives of others, increasing everyone's quality of life in the process.

The opposite occurs in socialist Venezuela. As mentioned, those who are politically connected get the benefits. Today, the Venezuelan economic elite is composed of bureaucrats, officials, and businessmen who have made a fortune by doing crooked business with the government. Therefore, socialism in Venezuela has rewarded crooked behavior instead of productive ones. Not only shrinking the real economy in the process but also leaving the Venezuelan state without resources for hospitals, schools, infrastructure, pensions, and other public goods.

This is why the Venezuelan state is bankrupted. It is not because of the United States' financial sanctions, as the Maduro regime says. It is due to their own corruption. The Venezuelan system has become so corrupt that it even ruined its most profitable industry, the oil industry. Two decades ago, Venezuela used to produce over three million and a half barrels of oil per day. Today, that number is close to 700 thousand barrels per day. In fact, Venezuela currently has only one oil drilling rig operating in its fields, down from forty-eight just two years ago. An unpreceded collapse for any oil-rich nation.

Ultimately, it is hard to imagine a more unequal system than the one implemented in Venezuela. A country where just a few have electricity in their homes, gasoline in their cars, and food on their tables. Because of it, we should reject the notion that socialism makes our nations more economically egalitarian. As in practice, socialism only fosters a different and wilder kind of inequality, one that rewards political affiliation rather than economic productivity. Socialism is nothing more than an economic system that has never worked. The same system that turned Venezuela into the biggest humanitarian crisis in the history of Latin America. 

Jorge Jraissati

Jorge Jraissati is an internationally recognized Venezuelan economist. Graduated at the Wilkes Honors College, Jorge is also a fellow at the Abigail Adams Institute. He has spoken about the Venezuelan crisis at numerous universities, including Harvard, NYU, and Cambridge.

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