Nicolás Maduro may have received more votes in Venezuela’s recent presidential election, but the record-low voter turnout is widely seen as its own form of protest against his increasingly oppressive socialist regime. So as long as Maduro’s government controls the voting process, his opponents will continue to advocate elections boycotts to try to erode the legitimacy of his government. Once again we see democracy being wielded as a weapon by tyrants, rather than an answer for political victims.
The true challenge to Maduro’s regime will not come from elections, but rather the growing threat of a coup. While the political heir to Chavez has managed to keep the military loyal by allowing them to profit from cartelizing vital supplies, the continuing deterioration of the nation’s economy has sparked growing rebellion and desertion among the ranks. As Maduro’s government has continued to doubled-down on the same failed socialist policies that created one of the world’s gravest humanitarian crises, action by the military is increasingly seen as inevitable – including by the leaders of neighboring countries.
Of course the destruction of Venezuela is not the result of a single man, and the issues plaguing the country will not simply disappear with his removal. So the question is what options realistically exist for a post-Maduro Venezuela, and what would those ramifications be for both its people and the rest of the world?
A few years ago I looked at what Ludwig von Mises would recommend Venezuela do, drawing inspiration from his writings on post-World War I Austria. Policy recommendations included condemning the socialist ideology that destroyed the country, mass-privatization of the economy, abandoning the bolivar, and abandoning all trade restrictions. While these would still be the ideal tonic for what ills the country, even in the face of socialist ruin the intellectual climate of Venezuela is still far from the classical liberalism of Mises.
This is demonstrated by the sad reality that the leading opposition parties, including Justice First, Popular Will, Democratic Unity Roundtable, and Democratic Action are a reaction to the violent crackdown and growing unconstitutional authoritarianism of Maduro’s government, rather than socialist ideology itself. In fact, all but Justice First still explicitly make socialist appeals in their political campaigns. The continued appeal of socialism among the public is so great that Henrique Capriles, a leading oppositional figure, called for a socialist-coalitionas the best strategy to take down Maduro.
So if the public will does not exist to embrace true market reforms, what options exist for the country?
The first issue Venezuela faces is transitioning away from the bolivar that has become worth less than World of Warcraft currency thanks to Maduro’s hyperinflationary policies.
The best recent example of transitioning away from such monetary chaos is Zimbabwe, which stopped printing its own worthless currency in 2009 and transitioned to using the US dollar at an exchange rate of $1 for Z$35,000,000,000,000,000. It’s possible that Venezuela could make a similar move – especially as US dollars are already circulating in what few markets still function in the country.
Unfortunately this may not work quite as well in today’s Venezuela.
If the Venezuelan people are not prepared to completely discard the personality cult of the late-Hugo Chavez, a full embrace of the American dollar may face complications – in part due to the US’s militarization of financial markets in recent years. While the pros may still outweigh the cons to formally adopting the dollar, there may be another option with unique appeal to Venezuela: the Chinese yuan.
Will China Bailout Venezuela?
Even during the peaks of the oil boom, the Venezuela’s socialist economy relied greatly on the Chinese government. China is already Venezuela's biggest lender, and has already been forced to restructure payments with its largest investment in Latin America. Of course Venezuela is going to need more than debt restructuring to stabilize its financial situation. Given its aggressive desire to expand its global economic footprint, China may see potential in a broad Venezuelan bailout package – one that could include the country formally adopting the yuan.
In 2015, the Mugabe government of Zimbabwe tried to make a big deal out of adopting the yuan as a legal currency in exchange for debt cancelation. The problem is that the announcement ignored that the yuan had already been legal currency dating back to 2009, and the debt forgiveness package was largely “a mirage.” This is understandable. Zimbabwe is of modest value to China outside of its use in projecting a growing global Chinese influence – with its tobacco industry the most lucrative trade the African nation has with its Eastern benefactor.
Venezuela’s oil reserves, on the other hand, have long interested China’s Communist Party – and Maduro’s government already prices it in renminbi as a way to get around the US dollar. What if China offers a bailout package – including perhaps skilled workers to replace those that have fled the government-operated PDVSA – dependent on Venezuela receiving oil payments made in the yuan? Given how vital the oil economy is to Venezuela’s economy – making up 50% of GDP - renminbi would likely begin to quickly circulate through the Venezuelan economy in a way that hasn’t happened in Zimbabwe markets.
China would benefit from this arrangement in ways beyond its own energy consumption. A formal adoption of the yuan would give the country its strongest foothold in Latin America to date, a new partner to its “One Belt, One Road” initative, and would offer the most significant challenge yet to the dollars' hegemony in energy markets due to the sheer size of Venezuela’s reserves. Since Chinese officials have made it clear that they want to reduce global dependence on the dollar in the future, this could be a strong power play – particularly given the back and forth on trade we’ve seen between Xi and the Trump Administration (which could possibly see this as a 21st Century violation of the Monroe Doctrine.)
Of course Venezuela’s hyperinflation is really a consequence of the country's larger economic evils: the destruction of economic productivity due to the nationalization of industry and an expensive welfare state.
The rise of China is itself a testament to what even modest steps to market liberalization can do for a previously socialist economy. If Chinese support comes with stronger property rights than we see under Maduro – whose government recently nationalized a Kellogg’s plant – then this too would represent a positive step forward for Venezuelan citizens, even if it would reduce the country to more of a vassal state of China.
China Can’t Save Venezuela
While a Chinese bailout of Venezuela could offer desperately needed relief to the country, this third-way approach can’t go on forever – and China itself may end up being an illustration of this. For all the talk of China’s economic strength, the country has been forced to resort to overstating its own economic growth in recent years, and is very likely still doing so today.
Even more troubling is China’s own reliance on debt to keep its economy growing. While lacking the massive welfare programs of Chavez and Maduro, China has been indulging in a decade-long debt binge with massive government spending on everything from infrastructure, industry, and island creation. While the strength of China’s government gives it significant power in kicking the can down the road, global officials – such as the Reserve Bank of Australia - are starting to get alarmed.
The threat to China stems from the same reason that could make it attractive to a future Venezuelan government: their shared socialist ideology and belief in central planning. While China has long departed from the communist policies in Mao – even if Xi aspires for his degree of power – its continued reliance on government-centric five year plans and bloated state-run firms has created its own form of Keynesian nightmare.
The Chinese economy obviously relies very heavily on state-sponsored, state-planned projects such as these constructions of buildings. It probably wouldn’t be much of an exaggeration to say that the Chinese economy is a Keynesian jobs project of outrageous scale, which also means that is as removed from real value creation as any Keynesian undertaking....
What China teaches us about economics and economic policy is the lesson that is generally not provided in college classrooms: the important distinction within production between value creation and capital consumption. The story of China’s economic development is to a great extent one of unsustainable, centrally planned growth specifically in terms of GDP — but a lack of sustainable value creation, capital accumulation, and entrepreneurship.
In conclusion, while my wish is to see the Venezuelan people be rid of the vile Maduro government as quickly as possible, the country is haunted far more by its continued loyalty to socialism than it is the actions of a particular government leader. While the realities of modern Venezuela – combined with the global ambitions of China – could make a deal between the two countries a logical outcome, the Chinese model is not one that will bring prolonged prosperity.
True hope for Venezuela, and the rest of Latin America, must come from rejecting the inevitable failures of Marxism and embracing a Misesian understanding of economics and classical liberalism.
In other words, Menos Marx, Mas Mises.