Instead, we see Venezuela as another example of what scholars call the “resource curse.” That’s the unfortunate correlation first described by the British economic geographer Richard M. Auty between nations with vast wealth from oil or other natural resources and political instability.
Venezuela is a textbook case of the curse, since nearly 90 percent of its people are now living in poverty in the country with the world’s largest oil reserves. After decades of leaders who failed to harness this commodity for peace and prosperity, it is questionable whether a new government can do a better job.
Only a few oil- and natural gas-rich countries, such as the United States, Canada and Norway have avoided this curse – in part because they built solid institutions and diverse economies before their petroleum drilling began.
The resource curse
The resource curse has afflicted many Latin American countries with profligate and populist elected leaders who succumbed to the temptations of corruption and reckless spending when easy money poured in, followed by right-wing dictatorships imposing repressive technocracies. Oil and wealth from other commodities like gold and copper, and foreign aid, have also supported kleptocrats and dictatorships who have often used their fortunes to retain power in other regions.
The scholars Terry Karl and Thad Dunning have persuasively argued that oil export revenue helped sustain Venezuelan democracy from the 1950s to the early 1980s. The government, they explained, could buy support from the elite with lower taxes and from the poor with social programs.
Oil money, in short, can sustain whatever government is in power, be it dictatorship or democracy.
But when crude prices fall, the loss of revenue polarizes politics as the wealthy and the poor fight over the reduced proceeds. And when these countries not only rely on one export but also very limited markets, that adds to their vulnerability.
Boom and bust
After several decades of strong economic performance backed by comparatively impressive social programs, Venezuela’s economy started to sputter in the 1980s. The vast sums of money it had borrowed a decade earlier, backed by future oil revenues, were coming due by that time.
President Carlos Andrés Pérez, who had presided over strong economic growth between 1974 and 1979, returned to power in 1989. However, this time the country faced a weak currency, rising poverty rates, and increased foreign and public debt in combination with low oil prices.
To stabilize the economy, Pérez implemented austerity policies that deregulated capital markets and reduced price controls on gasoline and other products.
These measures exacerbated economic hardships for the poor, and Venezuelans took to the streets to protest in deadly riots known as the Caracazo. Pérez survived two coup attempts in 1992 only to be impeached and forced out of office for embezzlement in 1993.
Popular anger against economic conditions and the dominant political class led voters to back more polarizing politicians. The first coup attempt against Pérez in 1992 was organized by Hugo Chávez, then a lieutenant-colonel, who famously exclaimed to the nation that he had failed “for now.”