It is obvious to any reasonable person that leftist policies and the disproportionate influence wielded by Cuba’s Castro-Communist regime have been major catalysts in transforming Latin America into “Latrine America.”
Three Myths That Hold Back Latin America
Ignoring the Need for Economic Freedom Will Keep Latin America Behind the Rest of the World
In Latin America today, especially in Venezuela, there is a focus on corruption and public money “mismanagement.” Though this criticism is often to the point, it overlooks the white elephant in the room: the ideological trend of socialism and populism.
Rather than facing the real cause of the malaise affecting most of the region, many in the press, academia, and politics denounce “corruption” and waste of resources.
Instead, the current debate should focus more on the free-market policies that respect individual rights. We only need to look at countries that have taken the opposite path, like Venezuela and neighboring countries.
There are several misconceptions clouding our judgment that need to be dispelled.
Mismanagement: Who Creates Wealth?
In a way, it makes sense to blame mismanagement of public resources for Latin America’s stagnation.
However, it’s based on the false premise that funds managed by state technocrats or enlightened leaders can usher in development.
It implies that government has the ability to manage resources and efficiently create wealth. But an economy cannot work without a free market where prices act as signals for resource allocation.
The Venezuelan social-democratic era (1958-1998) is often brought up as a model for how a “well-managed government” or “good socialism” works. It was considerably more stable than the regime Venezuela is facing today, but the seeds of its own destruction were sown during that period.
The truth is that Venezuela’s economy acquired a solid footing between 1930 and 1960 when the country maintained fiscal responsibility, openness, low taxes and few price controls.
Thanks to the capital accumulated during that time, Venezuela enjoyed an unprecedented stability. The later social-democratic administrations of 1958 through 1998 did not create wealth, but rather inherited it.
Unfortunately, these leaders squandered those revenues in public projects and inefficient social benefits. To make matters worse, the Venezuelan government decided to nationalize the oil industry in 1975, which created a wasteful state apparatus that has become a fundraiser for populists.
As a result, from 1958 to 1998, Venezuela’s GDP was -0.13 percent. In other words, the Venezuelan population grew more than that wealth they collectively produced, and therefore, the country sunk into poverty.