How Oil Riches Ruined Venezuela, by Raúl Gallegos, Potomac Books.
Review by Filed under Book Reviews
“History is littered with examples of strange economic happenings, but they occur mostly in places suffering bouts of high inflation, usually in countries at war. In a Venezuela that has been at peace for decades, something turned the country’s economy on its head and kept it there.” So writes Raúl Gallegos in “Crude Nation,” a book-length look at “the world’s craziest economy,” one which inspires its citizens to spend their money as quickly as they can, as the bolivar has been losing value for years on end and is now virtually worthless against the world’s major currencies.
One of the things that makes the Venezuelan economy so strange—and so fascinating—is that “in recent years, the country’s government earned roughly $100 billion annually from oil sales,” notes the author. Yet it doesn’t have the money to invest in its oil sector, and the Venezuelan people suffer from a chronic scarcity of food and consumer goods, including many products that most Americans take for granted, like toilet paper and diapers.
It’s important to note that Venezuela—found twenty-seven hundred miles south of the U.S. border in the northernmost part of South America—controls the largest proved oil reserves in the world, almost 300 billion barrels. Know too that oil is relatively inexpensive to produce in Venezuela; with oil readily accessible, exploration costs are minimal. Consider that the country’s oldest field, Lagunillas, discovered in 1913, could provide sixty-two more years of oil at current production rates, while the Cerro Negro field, discovered in 1979, could continue delivering 431,000 barrels a day for another 767 years. Yet as Gallegos reveals, the Venezuelan government has mismanaged the country’s oil money, using it to subsidize social programs and foster voter support, which has led to hyperinflation.
As a result, Venezuelans display decidedly strange economic behavior, which Gallegos witnessed firsthand during his stint as a Caracas-based reporter for Dow Jones Newswires and The Wall Street Journal. In fact, Gallegos experienced the oddball economic effects himself, noting that during the years he lived in the country, his rent got cheaper every month. His was not an isolated case; in the book he relates the experience of a Venezuelan attorney who purchased an apartment in an attractive neighborhood in the capital in 2008; eight years later the money said attorney spent to buy the apartment would barely cover the cost of an Apple iPhone 6, and his current mortgage payments are worth “about the cost of a cab ride to the airport.” Yet the protagonist in the story has little incentive to pay off his mortgage early, because the loan payments effectively cost him less and less every month.
“Venezuelans have learned to prize fleeting things such as physical beauty, cars, and flashy consumer goods today, because they may not have them tomorrow,” explains the author, noting that beauty salons and plastic surgeons do a reliably brisk business, even in the face of economic crisis. Venezuelans “spen[d] their money as quickly as they [can] on pretty much any consumer good—a television, an air-conditioning unit, brand-name clothes—saving nothing,” continues Gallegos. “They eagerly [take out] any loan a bank [is] willing to extend, almost regardless of the interest rate charged. For decades, Venezuelans have been brought up to think that saving money in a bank is the fastest way to lose it.”
Gallegos does a fine job of relating how the Venezuelan economy works, which isn’t as easy as one might think. Consider that a commodity can actually have four different prices (you’ll have to read the book to learn why), which results in the cost of living in Venezuela being among the cheapest and most expensive in the world—at the same time. He also explains: how what you pay may be determined by who you are and what you do for a living; how the value of used cars rises over time; and why a full tank of gasoline can be had for mere pocket change, among other oddities.
Notably, Gallegos devotes the lion’s share of one chapter to the nation’s chronic shortage of toilet paper, and also highlights the government’s frustration with “nervous purchases,” where citizens attempt to buy as much as they can, when they can, because they don’t know when they will see, say, toilet paper, again. The scarcity of select products has led countless Venezuelans to abandon their day jobs to work as bachaqueros, who do nothing more than acquire and re-sell scarce goods at a hefty markup.
The author also does an admirable job of recounting the country’s century-long oil history, part of the buildup to the final chapter, in which Gallegos addresses the measures Venezuela could and would need to take to get hyperinflation under control and stabilize the economy, measures that could include following in the footsteps of Zimbabwe and Ecuador, both of which have adopted the U.S. dollar as currency.
It’s clear though that policy changes alone won’t be enough to stabilize the Venezuelan economy. For one, Venezuelan citizens will need to break their addiction to spending and learn to spend and save responsibly.
“Giving Venezuelans a compulsory and basic economic education is of paramount importance,” begins Gallegos. “The country will continue to make the same mistakes of the past century if people lack the basic understanding of the way money works and the problems that have shaped Venezuela into what it is today,” he offers.
At this point one wonders if the country’s ever-increasing economic pain will ultimately motivate the government to change its approach—and the populace to change its behavior. If not, Venezuela’s economic future looks bleak—or, bleaker than it already is.
“No amount of money has ever been enough for Venezuela to become a stable, well-managed country,” concludes Gallegos. “No amount of money has helped Venezuela consistently reduce poverty. In fact it often seems as if the more money Venezuela earns, the worse off it becomes. Venezuela has become a country with no future that lives only in the present.”