Venezuela is a disaster; this is an indisputable fact. When people are eating their pets to avoid starvation, something has gone horribly wrong. And while this type of horror is typical of socialist regimes that deny the sanctity of the individual, there are still many defenders of socialism who pretend that Venezuela is an outlier instead of a prime example.
And in order to brush off the overwhelming evidence that socialism ultimately leads to catastrophe, apologists also grasp for seemingly “successful” socialist regimes to cite.
The most recent example of this comes from Bolivia, which has enjoyed economic growth over the past several years. The country is run by the self-proclaimed socialist president, Evo Morales. So dedicated is Morales to this philosophy, that upon meeting the Pope a few years ago, he presented him with a “communist crucifix,” where Christ is depicted on a cross embellished with a hammer and sickle.
But since Bolivia’s economy has experienced a 3.8 percent growth rate over the last year, many socialists see this as airtight proof that socialism can work and that Venezuela is merely a result of mismanagement and fiscal irresponsibility on Maduro’s behalf.
However, there is much more to this story than meets the eye. When we take a closer look at this supposed beacon of socialism, we find that much of the reason it has been able to succeed is because President Morales has allowed varying degrees of capitalism to exist in the Bolivian economy. And because of these market elements, Bolivia finds itself faring far better than Maduro’s Venezuela.
The Bolivia Example
Bolivia is nowhere near as “militant” as Venezuela when it comes to enforcing socialist policies.
When we look at Bolivia’s economy, it is very important to first understand the factors that are causing its economic boom. First, natural gas plays a huge role in its economy, accounting for 45 percent of its exports. And while this resource is nationalized, it does not mean that the state is in complete control. In Bolivia’s case, the state gets to share in the profits of private companies rather than controlling the means of production outright. And while this is in no regards a free market policy, it is less socialist than the practices of the Venezuelan economy, a distinction that matters greatly.
To be sure, Bolivia has been better at managing its resources than Venezuela has. While the latter has served as a cautionary tale about what can happen if natural resources are mismanaged when resource prices drop, Bolivia’s government has seemed to be more fiscally responsible than Maduro’s. In fact, Bolivia has dramatically decreased its debt over the last several years and has kept inflation rates low, putting it in a better spot than Venezuela. But again, there is more to the story.
In a recent article called, “As socialist Venezuela collapses, socialist Bolivia thrives. Here’s why,” the author states:
Since 2006, Bolivia has been run by socialists every bit as militant as Venezuela’s. But as economist Omar Zambrano has argued, the country has experienced a spectacular run of economic growth and poverty reduction with no hint of the chaos that has plagued Venezuela.
But to be sure, this statement is simply untrue. Bolivia is nowhere near as “militant” as Venezuela when it comes to enforcing socialist policies. On the contrary, the only reason Bolivia has been able to thrive in recent years is that it has incorporated elements of a free market economy. This, in effect, puts the degree of socialism actually practiced in Bolivia far lower than that of Venezuela.
By definition, socialism is state control of the means of production. In Venezuela, between 2002 and 2012, 1,168 private companies were expropriated, or taken over by the state. In Bolivia, between 2005 and 2015, only 20 private companies had been commandeered by the government. Sure, neither of these numbers are admirable, but a lot less damage can be done to a country when it chooses socialism-lite over the full-blown variety.
True, Bolivia does have a generous welfare state, but while this may be an aspect that comes with socialism, the redistribution of wealth is only a supporting feature and not a defining characteristic of this economic philosophy. This puts Bolivia in the same camp as Nordic countries, that, while praised for being examples socialist success stories, are actually using the fruits of basically capitalist economies to fund their welfare states.
The “Informal” Market
The entrepreneur is one of the most important elements of a free market economy. And if you want to know just how tyrannical a government is, see how it treats its entrepreneurial citizens. In the case of Bolivia, President Morales has allowed the entrepreneur to create value, or rather, he has looked the other way as informal markets have sprung up—something that Venezuela’s Maduro has not done.
When consumer goods are in short supply because of state mandates, black markets always pop up to offer these items at a higher cost. This is often how starvation is avoided in the extreme cases, Lenin’s Soviet Union being a prime example. But President Maduro has done all he can to ensure that these markets are squashed.
The UK outlet The Times recently said of Maduro:
In response to the crisis, he said he was ordering price controls be imposed on 50 items deemed “essential”, such as butter, flour and ham. Those who attempt to sell the goods above government demarcated limits will face prosecution and jail, he promised. Previous attempts by Venezuela’s socialist government to impose price controls have led to scarcities and helped fuel a rampant black market.
Of course, as history has shown us, this just leads to more shortages, fewer options for consumers, and in some cases, starvation. But Maduro is not the first Venezuelan leader to crack down on the business sector. In 2010, Hugo Chavez declared that a small town butcher was a “class traitor” for selling meat at higher prices than the government had mandated.
The butcher, Omar Cedeno, was then arrested, stripped naked, and interrogated after being charged with speculation. But his only real crime was entrepreneurship.
I’m not a capitalist or a socialist, I’m just a worker. People are being arrested for doing their job…. I’ve got to cover my costs. What business doesn’t? Yet eight officials came here to arrest me. It’s an abuse of power.
Cedeno was allowed to go back to his shop but had to report to a tribunal every two weeks before his trial.
But the opposite is happening in Bolivia.
Speaking to this effect, Simon Wilson of Mises Wire writes:
In Bolivia, like neighboring Peru, even the poorest of the poor have the means to turn a stall into a small business and a small business into something larger. Where once his ancestors were turfed off their land and forced to work it for their colonial masters, an indigenous Indian can now open a textile factory and attain a level of wealth that surpasses that of the descendants of those who expropriated his forefathers.
A great leveling of the playing field has occurred under Evo, not through forceful redistribution of wealth, but rather through standing back and letting freedom and entrepreneurialism of the people run unchecked.
Not a Beacon of Capitalism, but Not a Bastion of Socialism, Either
To be sure, Morales is no hero of free market capitalism. But allowing elements of the free market to “breathe through loopholes,” as Ludwig von Mises put it, has allowed the country to flourish. This, of course, is coupled with the fact that Bolivia has been fortunate enough to live on land rich with natural gas, an element that should not be ignored.
But all throughout history we see that countries prosper as they move further away from socialism, and closer to a laissez-faire economy. Bolivia is no exception to this.
As Ryan McMaken writes:
As always occurs when socialism recedes, wealth increases. In the case of the Soviet Union, Lenin’s limited markets never progressed beyond a very limited realm—thanks to Stalin’s reassertion of centrally-planned economies. In post-Mao China, where markets were allowed to become widespread (although always heavily regulated) the Chinese economy flourished (relatively speaking) as farmers, merchants, and countless other small and medium-sized enterprises were allowed to function with relative freedom.
Bolivia is no standard of socialist success. Indeed, any prosperity enjoyed by the country is simply because degrees of free-market capitalism have survived in spite of socialism, which in Bolivia, is more rhetorical than real.
Brittany is a writer and editor for the Foundation for Economic Education. Additionally, she is a co-host of Beltway Banthas, a podcast that combines Star Wars and politics. Brittany believes that the most effective way to promote individual liberty and free-market economics is by telling timely stories that highlight timeless principles.