Tags: Financial Markets | Latin America | Venezuela | malunda | misery | chavez | bank

Venezuela Could Learn from Rwanda's Capitalist Turn

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Flag of Rwanda (Aleksandar Mijatovic/Dreamstime)

By with Gavi Greenspan
Wednesday, 31 July 2019 05:02 PM Current | Bio | Archive

The 21st century Venezuela is a failure.

Venezuela failed because it adopted socialism.

Paul Larkin, Senior Legal Research Fellow at the Heritage Foundation, remarked in his recent talk "The Framers’ View of Property" that, "For about a year, we have been lectured about the alleged virtues of socialism, despite the fact that we have a living example in Venezuela of what socialism tends to produce: no power, no food, no water, military rule, and people forced to buy used toilet paper."

The Babylon Bee, a satirical online magazine, once published a story, "Millennial Drops Support for Socialism after Learning How Hard It Is to Get Avocado Toast in Venezuela."

None of this needed to happen.

Venezuela could have emulated Rwanda, which turned towards capitalism and saw impressive economic growth. Rwanda experienced a GDP growth rate of around 8% from 2001-2014 and is currently one of central Africa’s fastest growing economies.

Venezuela and Rwanda took two very different paths and saw diametrically different results.

Rwanda’s path led from poverty to relative prosperity while Venezuela’s path destroyed significant economic opportunity and led to national ruin.

Roughly three decades ago, Venezuela was a very different nation. Young Venezuelans would travel to other countries with scholarships and then return to their homeland to work.

People from less fortunate countries had been coming to Venezuela for a better life for decades. Venezuela looked like a nation that would have a bright future.

However, all was not well. In the 1980s, Venezuela experienced a currency collapse, and Venezuelan political leaders were not adequately responding to growing corruption and economic inequality.

This all created a context where the Venezuelan people were looking for change, for someone who had both the ability and the willingness to solve these problems. The someone that Venezuelans turned to was Hugo Chavez.

Hugo Chavez was elected president in 1998, and for the first couple of years of his rule, he appeared to be heading in a reasonable direction. The economists he hired were within the economic mainstream, and he attempted to attract new business investment.

However, common sense only reigned for so long. Chavez increasingly turned to Cuba and European leftists for inspiration, and developed his unique brand of Bolivarianism, which was strongly ideological. The result was massive economic and political decline that led to the mess that Venezuelans are experiencing today.

The results of Chavez embracing leftist rule were predictable.

PDVSA, Venezuela’s state-run oil company, started spending money on political projects. Venezuela also began subsidizing oil exports to international political allies such as London under the leadership of leftist Mayor Ken Livingstone. In 2007, Venezuela subsidized fuel for London’s busses. While Livingstone approved of the help, British conservatives protested, with the Deputy Leader of the Conservative group in the London Assembly at the time, Richard Barnes, stating, "For the Mayor to develop a foreign policy of his own is a nonsense. We are a [Group of Eight] capital city and we are getting foreign aid."

Further, Chavez expropriated successful companies and gave them to incompetent friends and supporters to manage.

Through stunts such as these, which socialized Venezuela’s economy and undermined its democratic norms, Chavez caused the state of affairs in Venezuela to spiral downward. After Chavez’s death in 2013 his successor, Nicolás Maduro, continued Chavez’s failed policies of state control and expropriations.

Through constant printing of money, he raised inflation to over 1,000,000% per year and instituted price controls. All of this has led to the current situation where Venezuela is 188 out of 190 countries in the World Bank’s "Doing Business 2019" report.

It has also ranked a dubious "first" in Johns Hopkins economist Steve Hanke’s Misery Index — which is based on inflation, unemployment, and other factors — every year since 2015.

Rwanda, meanwhile, has gone in the opposite direction. In the mid-to late 1980s, Rwanda was, in the words of former Foreign Service Officer Oliver Griffith, a "basket case."

A study by former World Bank economist Dickson Malunda, "Rwanda Case Study on Economic Transformation," noted that Rwanda suffered a collapse of the tin market in 1985 and, in 1992, its primary-school enrolment was a stunningly low 51%. Furthermore, Rwanda experienced famines in 1987, 1989-90, 1991, and 1993.

Its president from 1973-1994 was Juvenal Habyarimana who favored the Hutu elite over the Tutsis in Rwanda. In 1994, Habyarimana was assassinated. According to Malunda, Rwanda’s economic problems led to civil war and genocide. It was after the genocide that Rwanda started to turn around.

Paul Kagame, who had been a rebel leader against the previous Hutu government, became Rwanda’s Vice President and Minister of Defense in 1994 in the new government, and then became President in 2000. Undemocratic though he was, he understood the value of markets. He used capitalist Singapore as a model and reformed Rwanda.

Due to Kagame’s free-market reforms, Rwanda eventually flew to the top of listings of African countries.

As Griffith explained, "Indeed, sound leadership from the top, whether fully democratic or not, has once again proven to be the key ingredient for successful development."

Venezuela need not remain an economic failure. It can learn from Rwanda and turn in a capitalist direction. Griffith outlines two important first steps. First, the nation’s currency, the bolívar, ought to be tied to the dollar to stabilize its value.

Instituting a currency board which would enable Venezuelans to convert bolívars to dollars on demand could help with this. Second, Venezuela needs to unshackle its businesses from burdensome government involvement and attract foreign investors.

If Venezuela does these two things and moves its economy in a free-market direction, it can have a bright future. Otherwise, it is likely to spiral downward even further.

John Berlau is a senior fellow at the Competitive Enterprise Institute (CEI). He is the author of the book "Eco-Freaks." Read more reports from John Berlau — Click Here Now.

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Venezuela needs to unshackle its businesses from burdensome government involvement and attract foreign investors.
malunda, misery, chavez, bank
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2019-02-31
Wednesday, 31 July 2019 05:02 PM
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