How socialism turned oil-rich Venezuela into a basket case

National Post ^ | 6 May, 2016 | Kelly McParland

[fireman15]

Socialism is an even bigger fail in South America than it has been in areas in Northern Europe.

My great uncle Ed and my grandfather were very successful home builders after WWII. My great uncle was a multimillionaire back when that meant something. He made his fortune mostly by building thousands of small homes making a small profit on each.

The way my great uncle and grandfather built houses was similar to “prefab” houses today. They had several models that they made; each phase of construction was planned with efficiency in mind. They were nationally recognized for the efficiency of their operation. The houses turned out very nice also, and my dad is able to point them out to our family still standing all over our community, now worth many times the $5000 to $10,000 they sold for after the war and in the 1950s.

It seemed like the wave of the future, but these days such an operation probably would not be possible with the massive amount of government regulation and interference at every level. From the time the foundation was poured one of these houses would often be mostly completed approximately a week later. In less than a month a house would often have been sold and have a family living in it. After WWII and in the 1950s the local government actually tried to be a help not a hindrance.

The way it worked was: First crews laid multiple foundations. The walls of each home were partially built offsite at a central location by crews who became very good at putting them together. Then the walls were taken to the foundations where a small crew used jacks to raise them and connect them together. Another crew put on the roofs and then other crews did the finishing work with wiring, plumbing and then sheet rocking. Then the place was painted and flooring put down. The steps were all planned for maximum efficiency. It was almost an assembly line type of production.

In the 1950s the state department asked my great uncle to go to Argentina to help the Argentineans build small homes more efficiently. Unfortunately, he did not feel that he was successful. There were many challenges some which are similar to what we have these days... Local officials who cared more about preserving their jobs or getting a piece of the action than helping with quality construction... Workers who were resistant to doing anything differently than what they were used to... But mostly it was a cultural problem, he didn't want to say it was because they were lazy, but it had the same end result. It was a combination of socialism where no one really got rewarded for working hard and a culture where no one really felt like working hard was important to begin with. After two years of beating his head against the wall, he gave up and came back home. Unfortunately the business here suffered during his absence. My grandfather was a great production man, but my great uncle was the one with the flare.

[Organic Panic]

Bernie will get it right this time.

[dfwgator]

I’m sure the Venezuelan elites are doing just fine.

[dfwgator]

Doesn’t mean anything. The idiots here are going to have to experience it themselves. Good and hard.

Maybe that's what it's going to take to wake them up and end this love affair they have with socialism.

[douginthearmy]

We’re not talking about that kind of socialism. We’re talking about “democratic” socialism, like Denmark. -Bernout

[theBuckwheat]

Ludwig von Mises proved that socialism was unsustainable almost 100 years ago.

[Billthedrill]

Margaret Thatcher's famous formulation was "running out of other people's money". Usually when you start running low you stop doubling down, but this is rare in ideology-driven politics. Lenin managed to step back from the brink with a remarkable bit of rationalization he described by the borrowed term "state capitalism". Chavez, not so much. And when you do run out of other people's money you find you've run out of your own.

The question is, how to recover? Classically, it's with an infusion of more other people's money from different other people (Soviet subsidization of revolutionary Cuba, for example) and a resolution not to squeeze the marks quite so hard this time. What you get is slower failure.

But that appears to be Venezuela's best bet - cash infusions from the IMF, etc, that somehow magically do not end up in the pockets of corrupt leadership. That guarantee is impossible to make and the lenders know it, and apart from the wonderful prospect of advancing world socialism, those folks want their money back. Exploiting Venezuela's formidable natural resources with no venture capital also requires foreign outreach toward those who were once the victim of theft and who may be just a bit skeptical as a result. Making that a cash and carry basis is regarded as impermissibly colonialist. What's a ruling class to do?

Run. It's why generations of African despots wind up with Swiss bank accounts and mansions in Monte Carlo. Someone such as Chavez's daughter will find that her accrued $4.3 billion is a mighty nice grubstake. That money isn't coming back, but had it stayed in country it might have provided the maintenance without which Venezuela's power industry has failed, or built a refinery that might have kept the country in the oil market. $4.3 billion. A level of corruption and nepotism that makes even Hillary Clinton's eyebrows raise in envy.

Or violence, and an end to what Djilas called the New Class, who never were any more than the Old Class wearing a new coat of ideology. And so it begins anew. That is life under socialism and anyone who insists otherwise is conning us.

[SunkenCiv]

OPEC Has Already Turned to the Euro
GoldMoney Alert
February 18, 2004

...The source for the euro exchange rate is the Federal Reserve, and I have calculated the euro's average exchange rate to the dollar for each year based on daily data.

US Imports of Crude oil
(1)	(2)	(3)	(4)	(5)	(6)
Year	Quantity (thousands of barrels)	Value (thousands of US dollars)	Unit price (US dollars)	Average daily US$ per € exchange rate	Unit price (euros)
2001	3,471,066	74,292,894	21.40	0.8952	23.91
2002	3,418,021	77,283,329	22.61	0.9454	23.92
2003	3,673,596	99,094,675	26.97	1.1321	23.82

We can see from column (4) in the above table that in 2001, each barrel of imported crude oil cost $21.40 on average for that year. But by 2003 the average price of a barrel of crude oil had risen 26.0% to $26.97 per barrel. However, the important point is shown in column (6). Note that the price of crude oil in terms of euros is essentially unchanged throughout this 3-year period.

As the dollar has fallen, the dollar price of crude oil has risen. But the euro price of crude oil remains essentially unchanged throughout this 3-year period. It does not seem logical that this result is pure coincidence. It is more likely the result of purposeful design, namely, that OPEC is mindful of the dollar's decline and increases the dollar price of its crude oil by an amount that offsets the loss in purchasing power OPEC's members would otherwise incur. In short, OPEC is protecting its purchasing power as the dollar declines.

[Fred Nerks]

Brilliant story, thanks for sharing.