Venezuela’s Fatal Embrace of Cuba

Moisés Naím / The Wall Street Journal

In the first half of 2019, Venezuela began to suffer gasoline shortages. This, on its face, was preposterous. The nation had the world’s largest proven oil reserves—its refineries boasted the capacity to supply the country’s needs many times over. Yet drivers up and down the land found themselves waiting days on end in lines outside gas stations, bringing to mind the old joke about how if communists took over the Sahara it would run out of sand.

At the same time, tanker ships were departing from Venezuelan terminals full of oil. They did so in contravention of U.S. sanctions, turning off their satellite tracking devices to avoid detection and heading north-northwest…toward Cuba. This image tells the fundamental story of Venezuela’s multilevel disaster. Even amid crippling gas shortages that left Venezuela in economic free fall, Caracas’s priorities were clear: Cuba’s needs come first. Always.

If this order of business doesn’t seem to make sense, that is hardly unusual. Things keep happening in Venezuela that don’t seem to make sense, that weren’t even supposed to be possible. The country has bucked so many trends and plumbed such new depths that all common explanations seem to fall short.

Venezuela’s implosion isn’t simply the case of a Latin American basket case doing the things that basket cases do. For much of the 20th century, Venezuela was the poster child for the successful South American republic: democratic when its neighbors were despotic, prosperous when its neighbors were poor, and stable all through the vagaries of the Cold War. Venezuela carved out a niche as the country that the U.S. State Department could highlight to make its case that democracy could work in Latin America.

Hop into a time machine, go back to 1985 and ask 100 Latin America experts which country in the region they thought might fall to communist dictatorship by the year 2021. You would have heard plenty of concern about El Salvador and Guatemala, about Argentina and Colombia, even Brazil. But Venezuela? The notion would have seemed absurd.

And yet Venezuela’s democracy did implode, along with its economy, setting off the greatest mass migration of the dispossessed in Latin America’s history. One out of five Venezuelans has fled the country, a dismal parade of more than six million penniless, frail and desperate people straggling into neighboring countries in search of charity and shelter. Clarity on what exactly happened to their country is hard to come by. Too much happened there that was never supposed to happen.

Perhaps most sobering is what happened to Venezuela’s economy. For generations, economists have tended to portray development as a one-way process: Poor countries accumulate capital and technology and get gradually richer in the process. Even the term “developing countries” suggests a certain directional inevitability.

And for many decades, Venezuela certainly appeared to be “developing.” Indeed, from the time that its oil industry got going in the 1920s, Venezuela was a development star, with incomes growing steadily and a strong middle class emerging in a country with no history of any such thing.

Yet starting with the debt crisis of the early 1980s, the process stalled. The country’s politics became bitterly divided. Then, in the last 10 years, the development process slammed into reverse. Today, with incomes in free fall and people literally hiking to the nearest border to find something to eat, to call Venezuela a developing country is an absurdity, if not an obscenity.

At the moment, according to researchers, 95% of Venezuelans are poor in terms of income. More than 3 in 4 Venezuelans live in extreme poverty and food insecurity. At around $3 a month, the legal minimum wage won’t feed a person for a day, let alone a family for a month. There is therefore little point in working: About half of the working age population has dropped out of the labor force, leaving remittances from relatives who have fled as the main survival strategy for about 40% of the population. GDP per capita has plummeted to levels not seen since the 1950s.

Hyperinflation set off this most recent and precipitous descent. Beginning in 2017, unbridled government spending, uncontrolled monetary expansion and a collapse in tax revenues led prices to rise out of control. Money became largely useless: Prices in local currency rose an estimated one million percent in 2018. At 45 months and counting, Venezuela’s hyperinflationary spiral is now the second longest in history, bested only by Nicaragua’s in the 1980s.

No part of life is spared the chaos. Water shortages are endemic in all major cities. Blackouts are common. Chronic gasoline shortages have ground public transport to a halt in many places: Bicycles have become the mode of transport of choice for those who can afford them. The healthcare system has collapsed, leading child mortality rates to spike to levels not seen in a generation. Diseases such as diphtheria and malaria, which were all but eradicated decades ago, are back. The sole bright spot? Murder rates have fallen because, some surmise, ammunition is in short supply and gang members have migrated to neighboring countries.

That a nation once as prosperous as Venezuela could regress to this dystopian state is the first and most sobering lesson of the Venezuelan experience—proof that development gains aren’t permanent. Mismanage an economy badly enough, and the progress achieved in a generation evaporates dizzyingly fast.

Another lesson is that bad government can be as destructive as a great physical calamity. The scale of Venezuela’s implosion would suggest that the country had endured a war or a string of ghastly natural disasters. No such affliction came to Venezuela. Rather, it turns out that a country can endure wartime levels of destruction without a war—stemming from no force more destructive than the terrible policy decisions of its own government.

The main culprit is clear enough: socialism, in a particularly virulent and criminalized incarnation. A wave of expropriations beginning in 2005 put much of the country’s private economy in state hands. Those firms that remained private faced a wall of state controls that left them with little say over their own operations. Wages, prices, hiring and firing, production levels, imports, exports and investment—each became subject to minutely detailed rules thought up by socialist bureaucrats with little notion of how to run a business.

In time, businessmen who had retained control of their enterprises envied those who had been expropriated: At least the latter had received some nominal compensation, whereas the former were left in control of companies rendered worthless.

Private investment largely ceased. No sane entrepreneur would invest in an economy like Venezuela’s, unless in illegal businesses or in companies with close ties to the corrupt military or government bigwigs. Of them, there were many: Bureaucrats across the growing state-owned enterprise sector looked for creative ways to extract value from the assets they controlled and ferret it away in offshore bank accounts. Soon, Caracas had turned into a major money-laundering hub, with neophyte kleptocrats looking for savvier partners able to help them hide their loot.

Venezuela’s socialism was criminalized from the start, often serving as little more than a narrative that the powerful used to cover up their plunder of public assets. A ruthlessly extractive state elite ran through the nation’s economy like a plague of locusts, leaving virtually nothing behind.

How could such a destructive governance model take hold in a country with one of the most enduring democracies in Latin America? The question will keep academics busy for generations, but the first place to look for an answer is Cuba, which is where Venezuela found the model of state control that it would implement to such disastrous effect.

To call Venezuela under Hugo Chávez and Cuba under Fidel Castro “allies” is to understate the case. Beginning in the early 2000s, thousands of Cuban doctors, teachers, nurses, sports-trainers, and community organizers poured into Venezuela as part of an oil-for-development-assistance deal that became an economic lifeline for the island while filling Venezuela to the brim with Cuban spies. Soon, Cubans were enmeshed in Venezuela’s state system at every level, and Chávez made little secret of the fact that he trusted them more than his own people.

He was guilty of only mild exaggeration when, in 2007, he declared that “deep down,” the two countries have “one single government.” Proof of this, if any were needed, came in 2013, when on his death bed Chávez appointed the most militantly pro-Cuban member of his entourage, Nicolás Maduro, to succeed him.

Here, too, what happened was something long thought impossible: Gradually, over the span of a few years, one of the U.S.’s most important regional allies had defected from its coalition and joined an enemy bloc—all without anyone’s firing a shot.

The left-wing critique of U.S. foreign policy couldn't explain this turn of events. U.S. hegemony, especially in the Americas, was supposed to be ruthlessly effective. A country as strategically significant as Venezuela, with vast hydrocarbon and mineral riches, ought to have been a strategic priority for the U.S., its defection unimaginable. But in the wake of 9/11, decision-makers in Washington had come to devote practically all of their attention to the Middle East, leaving Castro and Chávez free to deepen their alliance undisturbed.

Under the cover of Washington’s inattention, Venezuela experienced a kind of upside-down colonization, with the smaller, weaker country—Cuba—effectively taking over its larger, richer neighbor. The U.S. response, when it came, was first piecemeal and later ham-handed.

The Bush administration barely registered the scale of the problem. The Obama administration began imposing sanctions against individual regime figures—sanctions that could have been effective if they had been applied in concert with allies, but they often weren’t because Spain, Italy, Argentina, Mexico, and others wouldn’t support them. Soon, Venezuelan kleptocrats were buying ranches in the Argentine pampas and castles in picturesque towns in Spain. When the Trump administration decided to heighten pressure on the regime, it levied sanctions against the Venezuelan economy—further impoverishing already desperate Venezuelans and driving millions to move to neighboring countries.

Only too late did the Trump administration grasp that sanctioning Venezuela did little to isolate its regime. Why? Because the U.S.’s strategic competitors—including China, Russia, Iran, Belarus, Turkey, Qatar, and, of course, Cuba—stepped into the breach, creating an alternative international support system that sustained the Venezuelan dictatorship.

In return for long-term oil supply commitments, China provided billions in financing facilities to Caracas just as it was losing access to Western credit markets. Chinese firms sold riot control equipment to the Maduro government, Russia sold fighter jets and digital snooping tools. Iran set up car factories in Venezuela, Belarus tractor, and prefab home factories. Turkey and Qatar became the linchpins of a system to launder the gold, diamonds, and coltan mined from Venezuela’s southern jungles and turn them into an income stream for the regime.

This ad hoc international coalition was a little ramshackle at the best of times, but it was good enough to get the job done. It drained U.S. economic sanctions of their effectiveness, allowing the regime to hang on even as its people were catastrophically impoverished. Nevertheless, the Western left took up a well-funded propaganda campaign, called “Hands-Off Venezuela” and supported by the Venezuelan government, that called for “nonintervention” in Venezuela’s affairs, but in a strikingly lopsided fashion: Only the Western democracies were admonished to keep their hands off Venezuela, not the autocracies that propped up the regime.

It is one of the world’s great diplomatic clichés that the problems of a country are for that country’s citizens alone to solve. For Venezuela, penetrated to the marrow by Cuban communism and propped up by this disparate coalition of autocracies, such ritual exhortations are a cop-out—a call to leave Venezuela to the Cubans.

In a previous age, dictatorships tended to end when dictators flew off to a comfortable exile. Baby Doc Duvalier, Haiti’s bloodthirsty dictator, ended up in a château on the Côte-d’Azur. Uganda’s Idi Amin found refuge in Saudi Arabia, Cuba’s Fulgencio Batista in Spain.

All that changed when Chile’s former President Augusto Pinochet was indicted and arrested while visiting London in 1998. That move, an expression of the new human rights doctrine of “universal jurisdiction,” was meant to usher in a new era of accountability for serious human rights violations. For a dictator such as Maduro, however, it means that stepping down will land him in a jail cell, which has made him more obdurate in hanging on to power. No guarantee of immunity from any established democracy could seem plausible to a man who is at this moment being investigated for crimes against humanity by the International Criminal Court in The Hague.

Venezuela’s calamity was both impossible and overdetermined. Any one of its maladies—socialism, a state captured by criminals, draconian sanctions, hyperinflation—could have been enough to ruin a country. But the country might still have found the moral reserves to free itself from its troubles had it not been for one, ultimately determinative factor: Cuba.

Venezuela is being looted for the benefit of an outside power. Those tankers carrying oil north to Havana while Venezuelan drivers wait in line tell the story of its disaster more neatly than any analysis can or will. Venezuela is under stealth foreign occupation—no less real for having been invited in.

Mr. Naim, who served as Venezuela’s minister of trade and industry in the early 1990s, is Distinguished Fellow at the Carnegie Endowment for International Peace in Washington, D.C. His new book, “The Revenge of Power: How Autocrats Are Reinventing Politics for the 21st Century,” will be published by St. Martin’s Press in February.