Two weeks ago, I discussed the state of the Venezuelan economy. Today, I’d like to provide some information about how it got there, and what it might lead to in the future. When Hugo Chavez took power in 1999, he brought in his own ideology that is known as Chavismo. Chavismo is essentially left-wing populism that, like other with other Socialist regimes, is very hostile to private business. Hugo Chavez was president for 14 years, and during that time he implemented a huge number of regulations, taking control of big businesses and centralizing decisions to the government. Small private businesses were still subject to an enormous number of regulations, including not being able to set their own prices. Prices were often set below the cost of producing those goods. This, coupled with the extremely large deficits run by the government to run its social programs led to a complete lack of goods when the price of oil dropped. The weak underlying economy had been exposed after being hidden by high oil revenues. For more, see here.
Everyday economics from the University of Puget Sound