The Latest Icon Of The "Success" Of Socialism: Bolivia

With the Democratic Party in the U.S. and the Labour Party in the UK having gone over fully into advocacy for good old-fashioned Socialism (with a capital S), we could use a real-life example of a self-proclaimed Socialist country that can claim at least a semblance of success.

Bernie Sanders likes to say that he is advocating for Socialism on the Scandinavian model, but he keeps getting rebuked by actual Scandinavian leaders and economists who deny that their model is actually Socialist at all. For example, there was Danish Prime Minister Lars Løkke Rasmussen, in a 2015 speech at Harvard’s Kennedy School of Government, “I know that some people in the U.S. associate the Nordic model with some sort of socialism. Therefore I would like to make one thing clear. Denmark is far from a socialist planned economy. Denmark is a market economy.”

Or there was Swedish economist Johan Norberg, quoted in IBD in 2016 as to that country:

"In the 1950s, Sweden was already one of the world's richest countries, and back then, taxes were lower in Sweden than in the United States." It was only after that, says Norberg, "did we start expanding the government dramatically. And do you know what happened then? We started losing," says Norberg. "It all ended in a terrible crisis." [But] Norberg says the country has become "successful again, but only after a new reform period, with more deregulation and free trade than in other countries."

So where is a good Socialist to turn? Clearly, at this point Venezuela is best ignored. (The WSJ has a big front-page story today on the struggles of a young couple trying to flee Venezuela, along with about a full tenth of the population so far.) But fear not. The Nation has the answer. Bolivia!

At The Nation you will find a big spread from yesterday titled “Bolivia’s Remarkable Socialist Success Story.” The author is Zeeshan Aleem. Let’s hear Aleem sing the praises of this new Socialist utopia:

Since taking office in 2006, [President Evo] Morales, a former coca grower and labor activist, has nationalized key industries and used aggressive social spending to reduce extreme poverty by more than half, build a nation with modern infrastructure, and lower Bolivia’s Gini coefficient, a measure of income inequality, by a stunning 19 percent. For much of Bolivia’s majority-indigenous population in particular, his tenure marks the first time that they’ve lived above poverty and benefited from their country’s tremendous natural resources.

It’s now clear that a redistributionist agenda has not been ruinous to Bolivia’s economy. Far from it: During the Morales era, the economy has grown at twice the rate of the Latin American average, inflation has been stable, the government has amassed substantial savings, and an enterprising and optimistic indigenous middle class has emerged. . . .

Morales also dramatically increased social spending. He poured money into building roads, schools, and hospitals, an expansion of infrastructure that was particularly transformative in the countryside. And he established modest but deeply popular cash transfer programs. . . .

It goes on with much more of same. Could there be anything Aleem might be leaving out or, perhaps, gliding over?

Let me start by reminding you of the Manhattan Contrarian description of how a “Socialist Death Spiral” works. I first described this in my post of June 28, 2015, titled “On Socialist Death Spirals.” Here’s the gist:

[W]hat you find [in a newly Socialist economy] is that the official statistics for years and decades show growth comparable to, and sometimes faster than, that in capitalist economies; and then one day, it all falls apart.

The frequently-repeated pattern is some combination of cooking the books on economic statistics and counting a blowout of government spending as a 100 cents on the dollar addition to GDP. Eventually, this game becomes unsustainable. Dozens of examples can be drawn from the former Soviet Union, its many satellites in Eastern Europe, South Asia (Cambodia, Vietnam, etc.) and so forth. But the most stark example undoubtedly comes from Venezuela, where Hugo Chavez took control and began implementing Socialism in 1998. Who can forget David Sirota’s piece in Salon 15 years later in 2013 with the euphoric title “Hugo Chavez’s Economic Miracle”? Excerpt:

[A]ccording to data compiled by the UK Guardian, Chavez’s first decade in office saw Venezuelan GDP more than double and both infant mortality and unemployment almost halved. Then there is a remarkable graph from the World Bank that shows that under Chavez’s brand of socialism, poverty in Venezuela plummeted (the Guardian reports that its “extreme poverty” rate fell from 23.4 percent in 1999 to 8.5 percent just a decade later). . . . Additionally, as Weisbrot points out, “college enrollment has more than doubled, millions of people have access to health care for the first time and the number of people eligible for public pensions has quadrupled.”

Well, Morales took office in Bolivia in 2006, which would mean that he is now 13 years into his rule, compared to 15 for Chavez when Sirota’s piece appeared in 2013. Will Morales’s program play any better than Chavez’s over the long term?

The Nation cites some macro statistics that would seem to paint a very rosy picture (eerily echoing Sirota):

During the Morales era, Bolivia has seen per capita income increase threefold and has rapidly transitioned from a low-income country to a lower-middle-income country in the eyes of the World Bank. . . . Bolivia levels of inequality went from well above the Latin American average to well below it.

But then, these are exactly the kind of statistics that traditionally get distorted in newly-Socialist economies by the blowout in government spending. Perhaps we should check in on where Bolivia’s per capita GDP stands after this claimed rapid increase. According to the World Bank rankings, that would be $3549, or less than 6% of the U.S. level.

And what has been the source of funds for all this new “social spending” and “cash transfer programs”? Funny, but you won’t find the answer to that in the piece in The Nation. Turn, perhaps, to this article over at Bloomberg from February titled “So Much Gas, So Few Allies Spells Trouble in Populist Nation.” Yes, Bolivia has been blessed with a bounty of natural gas, conveniently nationalized by the government, so that the revenue becomes a vast government slush fund to finance handouts of seemingly free money to the people — just like in Venezuela (or for that matter, Saudi Arabia or Iran). But Bloomberg points out that this game has its limits. It seems that Bolivia has been able to command premium prices selling its gas to neighboring countries like Brazil and Argentina, but those guys are gradually figuring out how to develop alternative sources at regular world market prices:

"Basically, there’s a new game in town that has broken the Bolivian monopoly on natural gas in South America," said Fernando Valle, an oil and gas analyst at Bloomberg Intelligence. "When you have super high margins somewhere, someone is eventually going to find a way to go into that market and undercut you. That’s what’s happening to the Bolivians now." Over the last four years, it’s become increasingly cheaper to build floating terminals that can receive huge LNG tankers, store the gas and vaporize it for in-land power generation. Meanwhile, YPF SA, Argentina’s state-controlled energy company, is now planning to build an export terminal that will allow it to liquefy the country’s gas and ship it out.

And even as the prices Bolivia can charge for its gas have begun to fall, production levels have also followed the usual pattern for nationalized industries in Socialist countries:

In 2018, Bolivia’s gas exports fell by about 30 percent, drastically impacting the government’s revenue and the entrance of foreign currency . . . .

Over on the political side, Morales seemed to be term-limited by the country’s constitution, so he should be out this year. To beat that, he orchestrated a referendum to do away with the term limit — but he lost! And then he got his non-independent Supreme Court to allow him to run again anyway. He will stand for his fourth term on the 20th of this month.

In the piece in The Nation, they give many reasons why Morales and his people are supposedly being more cautious and careful than previous Socialists and therefore it’s really going to work this time. I for one wish only the best to the Bolivian people, so if this really does work I will be the first to congratulate them. But let’s face it, the chances of long term success are just about zero. And meanwhile, for all the claimed increase in GDP over the past thirteen years, they are still almost to a person in rather deep poverty by U.S. standards. And if they think they can climb out of that just by having the government pass out the oil and gas money until it runs out, they are seriously deluding themselves. The high likelihood is that this is going to collapse at some point, as all Socialist utopias have collapsed. The only real question is whether it will take less than 20 years, like Venezuela, or closer to 70, like the Soviet Union. Meanwhile, the people will be far poorer than they need to be, and will have far less freedom.

And finally, I’m sorry but I regard it as unforgivable for climate campaigners like The Nation to somehow not notice that the supposed “success” of socialism in Bolivia is really just based on the government having a temporary bounty of natural gas money to pass out to make the people feel good.