Venezuela has a peculiar economy. For many decades, it’s been known as Saudi Venezuela, in reference to its vast oil reserves, reserves so high, and so profitable, that it brings in huge dollar reserves. Those dollar reserves strengthen the currency to such an extent that it’s very difficult for exporters in other industries to get their businesses off the ground, because compared to say, their neighbors on Colombia, they cannot compete, given what they must be paid in. This is known as ‘Dutch disease’ or, the curse of oil.

But it’s also switching to a tried-and-failed Marxist model on top of it. The means of production are being taken from the hands of private owners, or, “oligarchs” – cattle, sugar, chocolate, manufacturing – and turned into worker’s collectives, which have nothing to do with power to workers, but everything to do with power to party loyalists. These party loyalists – a.k.a., the Vanguard, as Lenin and Trotsky devised, or the ‘nomenklatura’ as later Soviet models had it, often nominally claim to be ‘workers’ but are usually petty intellectuals with an petty intellectual’s deep desire to control others. Calling themselves ‘workers’ they lack of any expertise in actual management. The net result: A hateful approach to workers who cross them, which takes away worker motivation, and a phenomenal waste of resources, particularly when up the chain of command, there are additional petty intellectuals with no understanding of management of resources, and profit-making is a dirty word. In a nutshell, this is why communism is such a massive, wholesale, and complete economic failure no matter where it’s tried and no matter how many times it’s tried.

Combine those two, and you have Venezuela, something which appears to be headed for an economic collision to top anything Argentina or the Soviet Union have ever seen. On the surface, it looks great. Oil prices are high. The money rolls in and out. But walk the streets of Caracas. The shortages are there in the stores, due to foreign exchange controls. Oh how I struggled to find a bottle of Frizz Ease shampoo when I was there! The garbage, the mess, and the crime are there. The buildings are covered with blood-red FARC and other Marxist graffiti, defacing the city. The informal sector is absolutely massive, more than half the workforce, a growing nation of Chiclet sellers. None of these people can get real jobs, because the government simply is trying to do too much and doing the most it can to crush the private sector, aided not just by its Marxist plan of takeover of production, but by the curse of oil and the difficulty of high oil prices.

So what’s left is a strange consumption culture from the high oil revenues, but a complete vortex of no investment from the Marxist imperative, sucking such investment right out of the country – and much of it is fleeing to Miami, Panama, or Colombia, based on rational economic forces. After all, no one wants to invest in a country where private property is considered illegitimate, and socialist confiscation is a very real prospect.

These are the economic dynamics that are creating the conditions for revolution in Venezuela. When high oil prices fall, Marxist collectivism cannot stand on its own, because only party loyalists want Marxist collectivism, there is no such thing as voluntary collectivism under a party vanguard; workers value freedom as much as anyone. The Chavista idea is to consolidate political control in the time it takes for oil prices to fall. That way, Venezuela will look and be ruled like Cuba, and like Cuba, the people will have very little means to change matters.

Daniel at Venezuela News & Views has a long and interesting piece on Chavista economics, explaining it out bullet point by bullet point and concept by concept, from an on-the-ground perspective inside the country. It’s brilliant reading here.