03/22/2026

 

Samuel Clifford

 

Introduction

 

Before the Chavez-Maduro era, Venezuela was the wealthiest country in Latin America and one of the most promising nations of the Western Hemisphere. The early Venezuelan economy under Spanish colonial rule relied on plantation agriculture, especially cacao, coffee, tobacco, cotton, and indigo. However, the discovery of major oil fields in 1914 radically transformed Venezuela’s economy. Oil quickly displaced agriculture, creating a hydrocarbon‑dependent export economy. By the eve of the recent Operation Absolute Resolve, Venezuela’s economy had reached a point of near‑total institutional and productive collapse. What had once been a wealthy petro‑state was now a fragmented system held together by informal markets, foreign patronage, and survival‑driven improvisation. How did this happen? How did such a wealthy country come to financial ruin?

 

Pre Chavez-Maduro Era

 

The country of Venezuela entered the mid‑20th century as one of the world’s rising economic stars. According to José Niño, the country in the 1950s ranked “fourth in per capita GDP worldwide.” Although the truthfulness of that claim is widely debated. Nevertheless, this position was fueled by a mostly open economy, minimal price controls, and strong property protections. The Pérez Jiménez military regime was not democratic, but it allowed markets to function, and the result was rapid growth. Immigrants from Italy, Portugal, and Spain arrived in large numbers, drawn by opportunity and stability. As Niño explains, this mix of relative economic freedom and secure property rights produced “unprecedented levels of economic development from the 1940s up until the 1970s.”

 

Beginning of the End

 

This amazing prosperity began to shift after the fall of military rule in the late 1950s. Romulo Betancourt, a former communist, took office in 1959 and steered the country toward a more interventionist model. Niño describes Betancourt’s approach as a “gradualist” move toward socialism, driven by a generation of intellectuals who wanted to nationalize the oil industry and use its revenue to build a welfare state. However, the decisive break came in 1975, when Venezuela fully nationalized its petroleum sector. This change heavily altered the nature of the Venezuelan state and turned it into a petro‑state where the government no longer relied on taxes but instead distributed oil wealth to maintain political loyalty.

 

Economic Consequences 

 

The economic consequences soon became clear. Daniel Lahoud points out that before 1973, when the government owned no companies, Venezuela grew at 6.5% per year. After nationalization and the rise of “democratic socialism,” growth from 1974 to 1998 fell to 1.9%. Lahoud summarizes the shift bluntly: “[s]ince 1999 we are experimenting with scientific socialism and the rhythm is 0.0 percent or negative.” Even before Chávez arrived, the country was already slowing under the weight of state control. The state expanded, corruption deepened, and political parties treated oil revenue as a patronage machine. By the 1990s, the economy was stagnant, inflation was rising, and public trust in institutions had eroded. This environment created the perfect opening for a charismatic outsider promising radical change.

 

Hugo Chavez-Nicholas Maduro Era

 

Enter Hugo Chávez who first emerged as a leader of failed coup in 1992 against then President Andrés Pérez. After serving two years in prison, he reinvented himself as a populist reformer and founded the Fifth Republic Movement. When Hugo Chávez founded the Fifth Republic Movement in 1997, he presented it as a revolutionary alternative to the discredited political order that had governed Venezuela since 1958. The country, being weary of corruption, inflation, and declining living standards, found hope in Chávez as he promised nothing less than a national rebirth. His movement framed itself as the voice of the poor, the excluded, and the betrayed. Therefore, he won the presidency in 1998. Many left‑leaning intellectuals abroad celebrated his rise. Poverty statistics initially seemed to validate their enthusiasm: inequality fell, poverty declined, and social programs expanded. CNN reported that inequality dropped to some of the lowest levels in the Americas, and the World Bank recorded poverty falling from 50.4% to 36.3% in less than a decade.

 

The gains, however, were built on a fragile foundation. Chávez’s government nationalized industries, expanded bureaucracy, and dramatically increased public spending. Which left the country more susceptible to corruption. He constructed a massive socialist welfare state that aimed at eliminating inequality and was all financed by the enormous cash flows from oil. The countries reliance on oil left it at risk to the varying price changes (and this was a problem since the 1950s). When oil prices were high, the system appeared to work. When prices fell, the illusion shattered.

 

When Chávez died in 2013, the economy was buckling under the weight of debt, price controls, and collapsing production. Al Jazeera observed that he left Maduro not only political authority but also “the poisoned chalice of an economy about to implode.” Within months of Maduro taking office, the bolívar was devalued by 30%. Oil production began to fall despite Venezuela’s vast reserves. Years of mismanagement, corruption, and the exodus of skilled workers had hollowed out PDVSA from within.

 

The collapse that followed was very unprecedented. Economist Ricardo Hausmann described it as “the largest recession in Western Hemisphere history—significantly larger, almost twice as large as the Great Depression of the US.” Hyperinflation soared to 26,000% and GDP contracted by more than 10%. Shortages quickly became catastrophic as The Independent reported that “75 percent of the country’s population has lost an average of 19 pounds in weight.” USA Today described people waiting in lines for hours, with one Venezuelan saying, “We have no food. They are cutting power four hours a day. Crime is soaring.” The mayor of Chacao added that “people are hunting dogs and cats in the street, and pigeons in the plaza to eat.” By 2017, poverty had exploded to 87% of households, nearly doubling in just three years. Millions fled the country, creating one of the largest mass migrations in modern history. As one Venezuelan professor put it, “Venezuelans today cannot eat. You see people eating from the garbage.”

 

During this time, the socialist elite fraudulently enriched themselves. The Washington Examiner reported that “billions of dollars of public funds were diverted into secret Swiss bank accounts,” and that Chávez’s daughter had become “a multibillionaire and the richest person in Venezuela,” even as doctors earned “$2.20/day.” The contrast between the suffering of ordinary citizens and the wealth of the ruling class revealed the true nature of the system. 

 

Sources

 

Hausmann, Ricardo, and Francisco R. Rodríguez, editors. Venezuela Before Chávez: Anatomy of an Economic Collapse. Harvard University Press, 2014.

 

Rodríguez, Francisco. The Collapse of Venezuela: Scorched Earth Politics and Economic Decline, 2012–2020. University of Notre Dame Press, 2025.

 

Etasi, Amirreza. “Anatomy of an Economic Suicide: Venezuela under Maduro.” Asia Times, 4 Jan. 2025.

 

Al Jazeera Staff. From Riches to Rags: Venezuela’s Economic Crisis. Al Jazeera English, 2018.

 

Al Jazeera Staff. “Venezuela: Chavez Leaves a Country on the Brink.” Al Jazeera, 2013.

 

Wilson, Peter. “Venezuela’s Crisis: Hunger, Blackouts, and Desperation.” USA Today, 2017.