Almost simultaneously with the Verkhovna Rada of Ukraine passing yet another raft of amendments to the State Budget of Ukraine aimed at improving social standards, Venezuela was engulfed in a wave of mass violence. The Latin American nation had been steadily improving its social standards since 2007; or rather, this development coincided with the consolidation of dictatorial power by Hugo Chavez and the massive nationalization of foreign-owned companies’ assets.
Just nine years later, people took to the streets to protest and demand an increase in financial and food assistance, and the protests eventually resulted in mass looting of shops, riots and fights, while the parliament tried to declare the country a humanitarian disaster area. In response to it, incumbent President Nicolas Maduro urged people not to use their hair dryers and irons to reduce energy consumption, asked them to save water and cut the civil servants’ working week to two days.
WHAT HAS HAPPENED IN VENEZUELA OVER A RELATIVELY SHORT HISTORICAL PERIOD?
Venezuela has become a world leader welfare expenditure-wise (it totals almost 64 percent of the public spending), and as a result, more than half the population is now receiving government assistance in one way or another. A majority of this spending has been covered from the state oil company Petroleos de Venezuela’s income. Even as late as 10 years ago, the company was still among the 50 largest companies in the world and the second largest in Latin America. Later on, it was nationalized together with another 1,200 businesses. Today, Petroleos de Venezuela, like most nationalized enterprises, is on the verge of bankruptcy. It has reached completely absurd levels, with the company importing Algerian oil into Venezuela. Meanwhile, the government ordered it to branch into every industry, including wholesale trading, supermarkets, and agriculture. One should remember that the state oil company provides 90 percent of Venezuela’s government revenue.
The Venezuelan model of governance, which is based on Marxist ideas and legacy of the revolutionary Bolivarian movements, is thriving in the Catholic soil of Latin American countries. The question is how to stop the slide and redeploy the state ideology toward a healthy, pragmatic compromise between public welfare spending and the country’s actual resources, while maintaining incentives to work for most people as well as creating and developing the nation’s economy.
Characteristically, the spread of mass social populism has been accompanied by a similar process of disintegration of public administration and the political class losing institutional capacity to stop the obvious degradation processes. For instance, Venezuela has seen hundreds of absurd and chaotic regulations being issued, like the already cited two-day working week or elimination of entrance exams for students, etc.
It is clear that at this rate of wasting resources and public finances disorganization which unfold against the backdrop of far-reaching paternalist expectations of the population, we will soon see the final collapse of the state-led model which aims to build “the Bolivarian socialism of the 21st century,” promised by Chavez back in his time in power.
To see a possible scenario for the future of Venezuela, one has to look to another Latin American country, Argentina, whose history shows that once started, a populist drive may have long-lasting consequences.
Before World War II, Argentina was ranked among Top 10 most developed countries. The spread of these same socialist ideas, which were picked up by many leaders of South America against the backdrop of the Allies winning World War II, was accompanied by nationalization of foreign-owned industrial businesses and emergence of broad-based trade union movements, and they became so strongly entrenched in that country, especially after Juan Peron’s rise to power, that neither numerous military coups nor liberal reforms that were actively supported by the US and the IMF and ended in Argentina’s default and the complete bankruptcy of the state in 2001 were able to stop the process. Structurally, the economy of Argentina, just as in the case of Venezuela, has slipped to the level of a commodity-dependent nation, with 50 percent of Argentina’s exports being made up by agricultural products now. One would probably hope in vain that decades-old, entrenched broad social strata that benefit from socialist policies would, under the existing system of universal suffrage, change the situation and provide public demand for a different kind of political elites.
A somewhat different scenario is unfolding in Brazil these days. After extensive liberal reforms of the 2000s and major inflow of foreign capital to the country, first president Lula da Silva, and then his successor Dilma Rousseff began implementing extensive programs of assistance for the poor. First it was the Fome Zero program, and then the Bolsa Familia, both aimed at supporting families with incomes below the poverty line. As a result, every fourth citizen of Brazil became a recipient of such assistance. The results were not long in coming: the economy began to show serious signs of stagnation and decline, foreign capital outflow started, and corruption scandals swept the country.
One must give its due to the local political elite, which, having learned from the historical experience of neighboring countries and Brazil’s own, stopped the nation’s slide into the abyss of mass populism and removed Rousseff from power by initiating impeachment proceedings.
WHY BRAZIL RESORTED TO SUCH A MOVE? THE ANSWER IS ALSO OBVIOUS
Unlike Venezuela and Argentina, the structure of the Brazilian economy is such that almost 70 percent of GDP is generated by small and medium enterprises, which in turn form a powerful class of national bourgeoisie with wide representation in the lower and upper houses of the parliament of Brazil.
Ukraine is following, albeit with a short delay of about 20-25 years, the Argentine liberal reform model of the early 1980s, while simultaneously implementing a far-reaching model of social support similar to that of today’s Venezuela.
With the advent of modest economic stability, Ukrainian politicians began flirting with the electorate’s hopes by promoting increasing social standards in Ukraine. The majority of people still remember the paternalist model of the USSR, entire generations grew up being force-fed revolutionary ideas, and a culture of private initiative was absent for nearly a century, so this policy immediately found support with millions of our citizens.
Retracing the steps of Venezuela and Argentina, politicians introduced mass welfare. To cover its costs, they used proceeds of privatization or international financial assistance which was thus exchanged for future electoral victories. Very quickly, social populism became the chief idea of most political parties and the basis of public policy conducted by fast-changing governments. The consequences of this policy, like in our Latin American counterparts, included a massive increase of socially vulnerable population’s numbers, degradation of the state apparatus, outflow of active population from Ukraine, and an increasingly commodity-dependent economy.
Even as the nation is at war with Russia and had gone through a technical default, this process has lately reached more people than ever before. Today, over 50 percent of government spending goes to welfare needs. Introduction of state energy subsidies has made it possible to reach a historic maximum in this process, with 65 percent of households receiving such subsidies now! On this measure, Ukraine is now almost equal of Venezuela.
That is, in terms of individuals’ dependence on the state, Ukraine occupies a leading position along with Venezuela, with all the concomitant consequences and prospects, and most importantly, with matching popular mood, philosophical preferences, and the level of entrepreneurial activity.
Meanwhile, given that SMEs have little effect on the formation of political culture in Ukraine, because only 5 percent of households receive income from business in Ukraine, there is no reason to expect any attempts to stop this negative process of emulating Latin American scenarios. Obviously, today’s high-tide figures are likely the limit of our irresponsibility and government shortsightedness. It is clear that mass privatization has ended, and credit resources are unavailable, so further attempts to flirt with the population by improving social standards will be paid for solely by inflation, further suppressing economic development and reducing the economy’s value added. Therefore, the experience of Venezuela is, like no other, very instructive for us. Everything can still be changed, most importantly, by learning from the obvious mistakes of others, and... nothing else.
