Venezuela’s Crisis: Lessons for the GCC
The period following WW2 witnessed the emergence of a military conflict between American and the Soviet union. The capitalist and socialist-communist economic models also crossed swords as a subplot of this global conflict, and the polarization was so strong that the US’ allies were forced to adopt the free markets and decentralized economic activity associated with the capitalist model, whereas the USSR imposed its obverse upon those under its sphere of influence, a system characterized by centralization of production, employment, consumption, and so on.

Fortunately for the GCC countries, they adopted the capitalist model, which contributed to an economic boom that was unprecedented in the region. Despite the key role played by oil in the period of sustained prosperity, it represented a complement rather than a substitute for capitalism. After all, there are several other countries—inside and outside the Middle East—endowed with huge amounts of natural resources, including oil, but which suffer from poverty and economic backwardness due to their failure to embrace free markets, and their insistence upon economic centralization.

During the 1980s, economic factors fueled the victory of the rightist, western bloc over its leftist adversary. The Chinese philosopher Confucius once said: “I hear and I forget; I see and I remember; I do and I understand.” During the twentieth century, several successive generations “saw” and “did” the socialist economic model, with its manifestly inferior economic performance compared to the capitalist alternative. In fact, even those who fervently supported communism on ideological grounds during the 1970s came to understand its fundamental flaws, and revised their opinions over the preferable way of organizing the economy. Arguably the most salient example of this was the countries of Eastern Europe, which sought refuge in capitalism after years of poverty, allowing their economies to flourish immediately.

Over time, a new generation emerged that had neither “seen” nor “done” socialism. Consequently, we find that during the US presidential election campaign, Democrat candidate Bernie Sanders has put forward various socialist policies, and secured significant electrical support, most notably in the youth category that have “heard and forgotten”—using Confucius’ terminology—about the results of socialism and communism.

Sanders’ policies remain hypothetical, and are unlikely to be implemented in light of Hillary Clinton securing the Democratic nomination. However, the Venezuelan people have plunged into communism, realizing the vision of their former leader, Hugo Chavez. The result has been a state of economic chaos, featuring the expected drawbacks of the leftist model, most prominently: high inflation, shortages of basic commodities, electricity blackouts, deteriorating security, and rampant corruption.

What makes this case particularly frustrating is that Venezuela is a wealthy country: it possesses the world’s largest oil reserves, exceeding Saudi Arabia’s by 10%. Venezuela’s problems have undoubtedly been exacerbated by falling oil prices, but the current crisis is fundamentally caused by excessive economic centralization, which has resulted in the government instructing public sector workers to stay at home in an effort to save energy, and politicians threatening factory managers with arrest for the crime of “non-production”.

I genuinely hope that the Venezuelan people can overcome these challenges; at the same time, we should carefully study the crisis to avoid repeating policy errors. The most important conclusion is the need to avoid socialist and communist policies in any way. Humans learned this lesson 25 years ago, but what is happening in Venezuela today—and what a large proportion of US voters are striving for—affirms that this lesson has been lost.

Among the most dangerous pitfalls is the loss of flexibility and rationality in economic policies. The Venezuelan government is currently in a state of paralyzing denial, which was experienced by most of the socialist-communist regimes of the twentieth century. In particular, when a leftist policy appears to have adverse consequences, the government always concludes that the reason is insufficient commitment to the socialist/communist paradigm, and therefore doubles down on centralization.

For example, when high inflation leads to shortages of goods, the government imposes price controls. When that leads to a black market and fails to solve the shortage, the government considers nationalization, with unjust compensation for the owners forced to sell. When the chaos in production persists, and corruption spreads, the government threatens “treasonous” and “non-cooperating” managers and workers with arrest—or worse. The government becomes incapable of diagnosing socialist/communist policies as being part of the problem, and consequently it cannot reform, until the economy collapses, taking the regime down with it. These steps are incredibly painful for the masses, especially the poor, who are—theoretically—supposed to be the largest beneficiary of the leftist program.

Among the positive attributes of GCC economic planning thus far are the twin principles of flexibility and pragmatism. The GCC economic model has been changed several times, as and when necessary, as a result of a rational assessment of the economy’s needs, and of the likely effectiveness of the various policy options. For example, the Bahraini economy transited from dependence upon pearl-trading, to the oil boom, to Islamic banking, and, most recently, to becoming a host for foreign direct investment. Even Saudi Arabia—which is criticized globally due to its economic and social conservatism—is currently seriously considering developing a non-religious tourism sector; further, it hopes to open its doors to foreign investment, to provide workers with residence permits, and many other policies reflecting unprecedented openness.

In summary, in many GCC ministries, key decision-making posts have lately been opened to the new generation in an effort to make use of their abilities and outside-the-box thinking. However, despite GCC millennials’ talents, their western counterparts have exhibited a dangerous flaw in their thinking: a fondness for socialist/communist policies, which is primarily the result of their not seeing first-hand the disasters witnessed by the peoples of the USSR and Eastern Europe during the twentieth century.

It is tragic to see ordinary Venezuelans subjected to the errors that humans committed in the aftermath of WW2. One hopes that the present crisis is enough to convince those seriously proposing socialist and communist policies that such programs are doomed to failure. George Orwell presciently warned us about this in Animal Farm:

“Do not imagine, comrades, that leadership is a pleasure!… No one believes more firmly than Comrade Napoleon that all animals are equal. He would be only too happy to let you make your decisions for yourselves. But sometimes you might make the wrong decisions, comrades, and then where should we be?

October 2017
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