by Jose Nino
History has shown time and time again that even the greatest of empires can decay and turn into total basket cases. At first, these declines may seem inevitable and outside the citizenry’s control, but they are actually the logical consequences of horrendous public policies put in place by these very governments.
The term “banana republic” is a very fitting description for what these countries devolve into. This term is usually used to refer to politically unstable countries, whose economies heavily depend on the exportation of primary resources such as bananas and other raw materials.
Current day Venezuela is the perfect standard to use when referring to this dreaded economic status, despite it’s main export being oil. Once one of Latin America’s most prosperous countries, Venezuela has turned into an economic basket case thanks to the interventionist economic policies carried out by its government in the past 15 years.
The overwhelming majority of the horror stories that Venezuelans face are universal fixtures of banana republics. Here are some of the most notable features of what a banana republic looks like…..
#1. Scarcity of Basic Goods
The shortage of toilet paper in Venezuela is well documented. Other goods such as diapers, sugars, and cooking oils are also in scare supply. What causes these shortages? Price controls. When governments fix price ceilings, the result is an excess demand and a bunch of empty shelves. Yes, the goods are “cheaper”, but that’s if you’re lucky enough to be at the start of the long line to receive the goods.
You know your country is on the road to banana republic status when basic goods must be rationed by the State.
#2. Destruction of the Local Currency
A national currency that is worth as much as monopoly money is a telling sign of a country that is on its way to becoming a banana republic. The rampant inflation that plagues these countries is caused by the excessive printing of money by central banks. Most of these countries are characterized by exorbitant government spending, and when the going gets rough, populist politicians turn to the printing the presses to finance these grandiose projects. The result is a completely devalued currency.
One need not look any further at the current state of the Venezuelan Bolivar to see inflation in full effect. Though officially listed at 6 Bs. per US dollar, black market exchange rates of the Bolivar are trading around 266 Bs. per dollar according to Cato’s Troubled Currencies Project. The bolivar is basically monopoly money at this point and with the way things are going, it may reach Zimbabwe levels of inflation.
As is life, when you entrust monetary matters to central banks.
#3. State-Ownership of Key Industries
One would think that state-owned enterprises are a thing of the past with the collapse of the Soviet Union and the wholesale discrediting of top-down models of economic organization. Unfortunately, certain parts of the world have not gotten with the program. Countries that follow this antiquated model are more than likely banana republics or are on their way to reaching that status.
PDVSA (Petroleum of Venezuela) is the perfect example of this dynamic. Since Venezuela nationalized oil production in 1976, PDVSA has served as the piggy bank for populist governments of all political stripes. The full-blown socialization of the country under Hugo Chavez was the logical conclusion of this unprecedented expropriation of private property.
When the State takes over one sector of the economy, with time, it will take over other sectors of the economy. The weak enforcement of property rights is a fixture of any banana republic.
#4. Foreign Companies Avoid Your Country Like the Plague
International commerce and investment are dynamics that are here to stay in our globalized world. Decreased foreign direct investment and companies taking their operations elsewhere are signs of a country whose institutional foundation is built on a house of cards. Economic downturns always follow these developments.
Venezuela is no stranger to this business flight. Many companies, such as Ford and Toyota, have had to shut down operations inside the country due to restrictive price controls that stymie the importation of essential products for the industry. In the same vein, the oil industry in Venezuela faced similar issues, as American, Malaysian, and Russian companies have had to take their projects elsewhere due to the onerous regulations.
When companies can’t produce and consumers can’t voice their preferences in the market, the only option is to exit.
#5. Brain Drain of The Best Talent
When a country’s living situation is intolerable, the best and brightest will vote with their feet. Brain drain, more formally known as human capital flight, refers to the emigration of highly skilled and educated individuals to other countries in search of better pay and working conditions. Throughout history, many countries such as Eastern Germany, the Soviet Union, and Cuba have experienced this phenomenon.
In current times, Venezuela is the best case study of this ongoing trend, as more than 1.5 million citizens have left the country and another 10% of the population is strongly pondering the possibility of fleeing the country. You know your country has hit rock bottom when its most talented citizens are running away for their lives.
#6. Leaders Appealing to the Gods
Nothing screams economic crisis like irrational appeals to higher powers by leaders in hope that things will get better. For starters, not only is this behavior illogical, but it also removes agency from the very government that created the economic mess in the first place. Economic downturns and crises are not the consequence of supernatural powers or forces of nature, they are the result of the deliberate, interventionist economic policies undertaken by these governments.
Recently, the current president of Venezuela Nicolás Maduro channeled god’s will in response to the plummeting oil prices and growing scarcity of resources that are negatively affecting Venezuela. Maduro stated that “god will provide” and that his benevolence would keep the economy going. The harsh reality is that economics is based on reality and not on flimsy appeals to spiritual or supernatural forces.
It is the free market, not god that will provide. This can only happen when the economy is no longer shackled by the State.
#7. The Government Blames Foreigners for Everything
One of the oldest tactics utilized by authoritarian governments, scapegoating foreigners is the perfect way to distract the populace from the real causes of their current plight. Some of the greatest injustices in the history of mankind have been levied against foreigners under this type of reasoning. It’s easy to point the finger at select minorities and other marginalized groups, when the guilty parties are those in power.
Like any good banana republic, present day Venezuela has turned to this playbook blaming the United States for its miserable economic state. Labeling the United States as “imperialists” and “coup-mongers”, Nicolás Maduro and his predecessor Hugo Chavéz have made sure to paint the U.S. as the boogeyman behind all the ills that Venezuela faces. The United States. can be at fault for various foreign policy malfeasances, but when it comes to Venezuela, its misery is clearly self-imposed.
Banana republics never refuse to look at themselves in the mirror and see who the real culprit is.
#8. Irrational Nationalism
Nationalism is one of mankind’s most primitive instincts. In a digital age where national borders are constantly being broken down by globalization, nationalism is becoming a fossilized relic of the past. “My country, right or wrong” is the type of thinking that only empowers authoritarian governments and incentivizes them to commit the most heinous of transgressions against their people. Unity is not always a good thing.
Venezuela is Exhibit A of this type of behavior. Even when the country is experiencing rampant inflation, scarcity, and public disorder, the president and his supporters still have the nerve to say that “we still have our country intact” and that’s all that matters.
The cold-hard truth is that countries are nothing more than artificial boundaries set by an entity that enjoys a monopoly on force. These types of appeals are nothing more than emotional posturing that only serves to redirect attention from the critical issues at hand. Being united in poverty and misery is no virtue.
#9. Constant Constitutional Changes
A constitution’s original intent is to limit the power of a government and clearly delineate its functions. Unfortunately, many banana republics are characterized by a very unstable constitutional foundation. The political-analyst Daniel Lansberg-Rodriguez made an astute observation with regards to the phenomenon of “wiki-constitutionalism” — a clever reference to the perennially changing nature of the Wikipedia database format — that is characteristic of Latin American countries: The majority of these countries have experienced unprecedented levels of constitutional rewriting.
Venezuela, for example, has had 26 constitutions up to this date. On other hand, Canada has had 2 and the United States has had only 1. This constant state of flux has left Venezuela and countless other Latin American countries with very weak political institutions that are at the mercy of political strongmen. Weak constitutions are the harbingers of an inevitable fall into banana republic status.
#10. No Separations of Powers
Last and certainly not least, is one of the cornerstones of a country that is completely in shambles. In functioning republics and democracies, the rule of law is supreme, not the arbitrary rule of one man or a select few men. The absence of separation of powers is fertile ground for all types of government abuse and tyranny.
The Founding Fathers of the United States were wise in the construction of a political system that made clear distinctions between the separate branches of power. Despite various increases in the size and scope of government since World War I, the United States had maintained institutional stability throughout the 20th and 21st century.
On other hand, the Venezuelan case is one of a country that benefited from a huge oil-boom in the 20th century, but at the same time, had a very weak institutional foundation. Eventually this weakness caught up with it and laid the groundwork for the current mess that it is in. Massive intervention in the economy, imprisonment of the opposition, arbitrary killings, and restrictions on free speech are the order of the day in Venezuela.
Current crises in first world countries such as Greece and Spain have many ominous parallels to that of Venezuela. Time will tell if these nations will completely fall for the Siren Song of statism. First World countries be warned, the turmoil that my home country of Venezuela faces can manifest itself in your backyard if people do not wise up and keep their governments in check.
Don’t fall for the same mistakes that my country did.