Venezuela Grows More Unequal

“The inability of the government to guarantee public services promotes social inequality,” read a headline in the Venezuelan digital newspaper Tal Cual on July 30. A shortened title might have read: “Socialism Sticks It to the Poor-Again.”

The Trump administration is tightening the squeeze on the military dictatorship of Nicolás Maduro, but Venezuela is no longer grabbing media attention as it did earlier this year. It’s difficult now even to get up-to-date numbers on out-migration, though it undoubtedly continues.

One reason for the lull may be that the regime’s own economic squeeze on the Venezuelan people has become slightly less onerous. Capital controls have been eased and the economy is gradually dollarizing. More significantly, officials are no longer aggressively enforcing all price controls.

Venezuela isn’t dollarized but many suppliers of goods and services now use the U.S. currency as the measure of value even when actual transactions are in bolivars. This, along with the dictatorship’s increased tolerance of the dollar’s use, has somewhat moderated hyperinflation.

Allowing merchants to price their wares in line with costs has meant the end of long lines at markets and the return of goods to shelves. The ability to raise prices has allowed firms to adjust some employee salaries upward.

Even so, things remain tough for most Venezuelans. If the hardship is getting less attention these days, it also may be because government repression has succeeded, much as it has in Cuba and North Korea. Any effort to organize large street protests meets a violent response from the regime.

The most important generator of hard currency is oil. But exports are down from more than three million barrels a day in 2001 to below 900,000 in June. Meanwhile the rest of the productive economy has been destroyed by confiscations and because it’s difficult to access the dollars needed to import components and raw materials.

The International Monetary Fund is forecasting an economic contraction of 35% this year, and inflation is in no way defeated. The price level rose 33.8% in July, which only in Venezuela could be regarded as good news. The bolivar is a joke but it is still in use because dollars remain hard to come by and the regime sporadically threatens reprisals against those caught using them.

The central bank has mandated banking reserve requirements near 90% to eliminate credit that would almost certainly be used to buy dollars. But because the regime has killed its tax-revenue base, the monetary authority is still printing money to pay government bills, including the payroll for a bloated public sector. The high reserve requirement has stifled lending. If it continues, banks may begin to go out of business.

Well-to-do Venezuelans with access to dollars-including regime insiders-can overcome shortages; for those who can’t-i.e., the poor-life has become primitive. Thus as Tal Cual reported, the gap in living standards between the haves and the have-nots is wider than ever.

It wasn’t supposed to be like this. Economic equality is the socialists’ Holy Grail. People are poor, the logic goes, because the rich have too much. Ergo, all it takes to end poverty is the use of state coercion to distribute economic gains evenly. As Sandinista supporter and New York Mayor Bill de Blasio put it earlier this year on Twitter , “There is plenty of money in this world. It’s just in the wrong hands.”

Tell that to the Venezuelan poor. Not only have their numbers increased under socialism, but the suffering among the most vulnerable has grown more intense. Meanwhile the upper crust is able to provide for itself.

Take the breakdown of infrastructure. Those with resources have “responded through private mechanisms” to secure the public goods the state fails to deliver, Tal Cual reported.

Venezuela now experiences recurring blackouts and brownouts-a problem that preceded the Trump sanctions. For most, the failures mean darkness and spoiled food. But not for everyone. “When the power went out, a building in Altamira, east of the capital, remained on thanks to each family paying $2,500 for a generator that covers the demand for the entire residence, including air conditioners and elevators,” according to Tal Cual.

Contrast that with life in the “ranchos,” where residents now make “lamps” out of mayonnaise jars, diesel taken from vehicles, and pieces of cloth. One local described it to the reporter as going back to “prehistoric” times. With water, sanitation and other public services, the story is the same. The haves provide their own solutions while the have-nots are at Mr. Maduro’s mercy.

Analysts predict that this could lead to the complete privatization of public services. But delivering those services will require wealth creation and that’s not likely to happen as long as socialism rules Venezuela.