‘That wasn’t real socialism’ is the go-to excuse from the hard left whenever another left-wing regime bites the dust. While we may smile at the apparent desperation of the argument, there is a core of truth in what they are saying. Very few societies have outright abolished private property rights and collectivized the entire economy.
The current poster child of socialist Armageddon is of course Venezuela. Two decades after Hugo Chavez gained power, his brand of Bolivarian socialism has wrecked the economy and given rise to the customary authoritarianism that seems to go hand-in-hand with radical socialism. But the British Socialist Party is having none of this. They continue to argue that an economy that retains many traits of a capitalism economy is not socialist.
And it is easy to have a bit of sympathy for their argument. Socialism is a theory of social organization which advocates democratic control and collective ownership of the means production, distribution, and exchange. This has not happened in Venezuela. Chavez and his successor, Nicholas Maduro, has not outright collectivized the entire economy.
On many parameters, Venezuela does not appear particularly socialist in an international comparison. Venezuela’s government budget equates to around 20% of GDP. Compare that to the UK, where several years of ‘austerity’ has brought state spending down just below 40% or Germany, where the state spends 43% of GDP. In Denmark, the world record holder, the state spends a whopping 52% of GDP. This is mainly due to larger spending on things like social programs, education and health, not higher state employment. The public sector is indeed relatively large in Venezuela. According to the International Labour Organization, public employment is around 28% (2014) compared to 21.5% in the UK and 17.6% in the US. But Venezuela is far below Denmark’s 31% or Norway’s 36%. Indeed, many socialists point to Scandinavia for examples of how socialism can be implemented successfully.
Now, you cannot have your cake and eat it. If Venezuela is not socialist, neither is Scandinavia. We have explained why Scandinavia is not socialist and thrives in spite of, not because of, large public sectors. But the cake and eat argument goes for us as well. If Scandinavia is not socialist, neither is Venezuela. And here we come to the crux of the argument. When arguing that Scandinavia is not socialist, we point to the Heritage Foundation’s Economic Freedom index as a useful indicator: ‘Capitalism is underpinned by exactly that: freedom for economic actors to engage in the markets without state interference. In direct opposition, socialism is defined by state direction of the economy’.
The stark reality of the deterioration of economic freedom in Venezuela is obvious. It gets worse. In the OECD’s Ease of Doing Business index, Venezuela ranks 188 out of 190 countries! Denmark? Number 3. The International Property Rights Index ranks Denmark at number 12, compared to a dismal 126th out of 127 countries measured for Venezuela. The Bolivarian revolution has not only introduced certain socialist measures, it has ruined Venezuelan capitalism. Most prominently, the oil industry, once the backbone of the economy, has been wrecked. Petroleos de Venezuela, the Venezuelan state oil company, was nationalized in 1976. But the company didn’t enjoy a monopoly until Chavez forced private oil companies to surrender majority control in all Venezuelan projects in 2007 and expropriated the assets of those who rejected the offer. Since then, mismanagement, underinvestment and corruption has led to a catastrophic collapse in production.
This could have been foreseen. The flaws of public sector involvement in the economy are well known. State enterprises are prone to waste, mismanagement, political influence and corruption. Furthermore, the lack of a price mechanism makes efficient resource allocation impossible. But the damage is compounded by the state crowding out the productive private sector. Any measure of socialism can only be introduced to the detriment of free enterprise. Resources appropriated by the state cannot be utilized by the private sector. The private sector, driven by profit, is per definition productive. Any company can only survive by adding value: the end product must be more valuable that the inputs, otherwise the company goes bankrupt. This is how a capitalist economy stands as a guarantor for economic progress. As the government has destroyed Venezuelan capitalism, the economy has collapsed.
A fundamentally capitalist economy with secure property rights and economic freedom is a prerequisite for a successful society. What has wrecked the Venezuelan economy and brought the country to the brink of economic collapse is not just socialism, it is the harm socialism has done to capitalism. The determinant of whether an economy thrives or not is not measures of redistribution, public employment or other state provisions, but the health and depth of its private, capitalist economy. When obtaining a building permit for a warehouse takes more than a year, when the army is running food distribution, when supermarket prices are subject to strict price controls, when the currency trades on the black market for a fraction of the official value, capitalism ceases to work efficiently. So when the hard left argues that Venezuela ‘isn’t real socialism’, they miss the point. We do not claim that socialism is a precondition for economic collapse, we know that a lack of capitalism is.