Last year millions of ordinary citizens took to the streets in Chile in what was the most disruptive and violent popular protest in Latin America since the “Caracazo” in Venezuela thirty years earlier. As we reflect on these unsettling events, we should not forget that the “big thing in Caracas” led to Hugo Chavez and his catastrophic Bolivarian Revolution.
There are some similarities between the Chile of 2019 and the Caracas of 1989. Both were seemingly “successful” economies with “stable” democracies, and both had recently benefited from a cycle of high commodity prices that had raised the economic expectations of their citizens. When the inevitable bust occurred and the belt tightening followed, expectations were crushed. The popular narrative suddenly shifted to a viral rejection of what was now seen as a “rigged” system promoted by corrupt politicians and their crony business elites.
In the Spring of 1989, the “Caracazo” street riots erupted in response to prices increases for gasoline and public transport, a situation similar to the 2019 chaos in Santiago. After oil prices collapsed in 1986, Venezuela’s economy tumbled and investors deserted. In February 1989, a newly-elected president, Carlos Andres Perez (CAP), took office. Though during the campaign CAP had denounced the IMF as “a neutron bomb that kills people, but leaves buildings standing,” he now requested the organization’s support, agreeing to a traditional belt-tightening program. The Caracazo upheaval paralyzed the country and resulted in hundreds of deaths. More protests persisted into 1990. They were followed by two coup attempts in 1992 and, shortly after, the rise of Colonel Hugo Chavez and his “Bolivarian Revolution.”
I lived in Caracas from 1980-1984, working as a journalist and business consultant. This was the tail end of the “OPEC oil boom” and the beginning of the debt crisis that was to result in a “lost decade” for all Latin America. When I lived in Venezuela it appeared to be a stable and functional democracy, with regular alternation of power between the left and the right. Despite its problems (traffic, corruption of all sorts, and poor public services), Caracas was a delightful place to live and work. Venezuela was a prosperous country with a large and thriving middle class, and it attracted legions of immigrants from Latin America and the rest of the world. It had a world class oil industry and was a magnet for multinational investments. In the early 1980s, Caracas was the most cosmopolitan city in Latin America, with the best restaurants and lifestyle. Its airport hosted a daily Concord flight to Paris and six daily flights to Miami.
After 25 years of misrule by Chavez and his lieutenant Nicolas Maduro, Venezuela today can only be characterized as a failed state. Its collapsed economy serves only the interests of a small group of kleptocrats.
Venezuela is now ranked 188th in the World Bank’s “Ease of Doing Business” survey, with only Eritrea and Somalia considered to be worse.
GDP per Capita has fallen by half since Chavez took power, as the World Bank’s data shows below.
I left Venezuela in 1984 to pursue an MBA. I returned periodically, including in 1996 when Chavez was the leader of the opposition and in 1999 and 2002 when he had already been elected president. On each visit, I made the rounds of business leaders and friends. The message was one of complacent resignation. Most Venezuelans saw Chavez as a temporary problem. This complacency was all that Chavez, with the assistance of his Cuban mentors, needed to entrench himself by gradually undermining democratic institutions and the rule of law. Chavez was very fortunate that oil prices rose sharply between 2002-2007 which allowed him to fund his nationalizations and social programs and cement his control of the military, the courts and the legislature. By the time Venezuelans realized that Chavez had secured power, it was too late to do anything about it. Millions of Venezuelans, including the most educated and productive, since then have left the country, resettling in Colombia, Chile, Brazil, Miami and Madrid. It is ironic that in the 1970s and early 1980s, Colombians, Chileans and Spaniards had all flocked to Venezuela. Isabel Allende spent her formative years in Caracas, an exile from Chile.
Chavez was clever in securing international support for his experiment, including from prominent foreign leaders and intellectuals. To deceive and disarm his opponents, he tightened the screw in steps, gradually eroding property and democratic rights. The charts below, which come from the World Bank’s Government Indicators, show how freedoms were taken away step-by-step during the course of the Bolivarian Revolution. Today, Rule of Law is near zero on the World Bank’s scale.
Lessons for Chile and Others
What are the lessons to be learned from the Venezuelan catastrophe? Perhaps the only obvious one is that success and stability are precarious. This means that no effort should be spared to strengthen institutions and governance. Also, it should be recognized that in the present environment of slow growth stability will be difficult to maintain unless societies are able to generate more equitable distributions of incomes. Latin America currently fails miserably in providing equal opportunities to all. Entrenched interest groups fight tooth and nail to preserve their privileges. Matters are complicated by the fact that capital is mostly in the hands of a highly globalized elite which is risk-averse and prefers “safe” assets in the U.S. or Europe. During the slow burn of the Chavez regime, domestic capital deserted, to never return.
Awesome post! Keep up the great work! 🙂