By Yong Kwon

The UN Refugee Agency chief recently characterized the ongoing migration out of Venezuela as a “monumental” humanitarian crisis. This is all the more tragic as the suffering is completely unnecessary, triggered by government mismanagement. But the situation in Venezuela has been passed off by many in the United States as evidence of socialism’s failure – the consequence of welfare spending and redistribution run amok. In fact, socialism is no more the cause of Venezuela’s disintegration than capitalism was the root of South Vietnam’s collapse.

The dire situation in Venezuela today is the byproduct of a political system that relies on redirecting public resources to elite stakeholders who support the incumbent government. Blaming the poverty relief programs and subsidies for the poor also fails to take into consideration the long-term structural weaknesses of the Venezuelan state that predate Hugo Chavez.

The use of oil as a political resource in Venezuela dates back to the dictatorial regime of Juan Vicente Gomez, who ruled the country between 1908 and 1935, a critical period that included the discovery of the major oil reserve at Lake Maracaibo. He awarded oil concessions to political allies, who then received rents by selling extraction rights to foreign oil companies. Venezuela’s key commodity was therefore established from the very beginning as a political chit.

Following the death of Gomez, Venezuela experienced a succession of military coups in 1945, 1948, and 1958. Although the final coup restored democratic rule, the violent overthrow of government by the military established a precedent for the institution’s role in determining the legitimacy of Venezuelan governments. Exacerbating this dynamic, the elected leaders that succeeded the 1958 generation faced the economic challenges that were endemic in the region during the 1980s. The fragility of Venezuela’s democratic institutions was on full display in the mass riots of 1989 and two attempted coups in 1992.

President Hugo Chavez, who himself rose from the military to national prominence after leading the first of the two failed 1992 coups, was also nearly overthrown by the military in 2002. Cognizant of his tenuous grip on power, Chavez not only began purging the state, but also instituted tight currency controls, using his government’s control of foreign exchange reserves to pay off allies and key figures in security apparatuses. Although initially put in place in 2003 to prevent investors who were rattled by the coup attempt from abandoning the Venezuelan bolivar, the currency controls became an essential component of the country’s political economy. Chavez bought off politically crucial figures by giving them guaranteed access to the tightly-controlled currency market and provided them a preferential rate when exchanging Venezuelan bolivars for US dollars. Nicolas Maduro, who succeeded Chavez in 2013, inherited this political mortgage and continued making payments on it despite Venezuela’s shrinking dollar revenue from oil sales. The bottom fell out of oil prices in the summer of 2014, plummeting from USD 114.25 per barrel just before the crash–just above the price Venezuela needed to command to balance its budget–to USD 29.25 per barrel in early 2016. By that point, the crisis was in full swing.

The foreign-exchange-for-political-support scheme diverted valuable hard currency away from the people who were responsible for imports of basic goods and other essential commercial activities, making the crisis entirely foreseeable. However, Maduro did not have the tools or the political capital necessary to break the patronage relationship that was essential to his continued hold on power. As a result, the scarcity of hard currency in the economy was transferred to the people of Venezuela in the form of higher prices for goods and the decimation of their savings.

The regime’s need to maintain the flow of foreign currency, especially dollars, to potential political spoilers accounts for the differences in response to the global oil price downturn in Venezuela and other oil-dependent economies. The Russian government, for example, had sufficient autonomy to allow it to focus on retaining its dollars in the face of the market shock. Russia’s Central Bank devalued its currency to maintain the country’s balance of payments and protect the its dollar reserves. Meanwhile, Gulf states used their vast foreign exchange reserves to maintain their dollar exchange rates and protect their ability to purchase from abroad. Actions by Russia and Gulf states during the oil market collapse show how decisive government actions have helped either evade or, at the very least, buy time for the economy as global commodity prices normalized. However, due to its particular political dependency on purchasing support through the transfer of hard currency to potentially coercive actors, Venezuela did not have these options.

Having made direct access to foreign exchange the regime’s main instrument of political control severely constrained Caracas in its responses to the growing economic catastrophe. Rationally, Venezuela might have devalued the bolivar to bolster exports and retain some of its dwindling dollar reserves, but devaluation of the currency to a reasonable market rate ran counter to the interests of the government’s key clients who demanded and expected preferential treatment. Authorities instead maintained an overvalued exchange rate, which allowed politically crucial entities to continue trading otherwise worthless bolivars for dollars at a subsidized rate. Retaining this rent payment worsened the existing scarcity of hard currency in the economy at large, further reducing the value of the local currency and creating a vicious cycle.

As the price of essential goods rose, Caracas responded by printing more money. The resulting inflation only served to accelerate the destruction of savings and further reduce the purchasing power of the most economically vulnerable members of society. As a result, poverty spiked and people began leaving the country for their own survival.

The use of oil revenues to fund social programs and redistribute Venezuelan wealth did not play a principal role in the country’s economic crisis–if anything, the Venezuelan government’s failure to redistribute enough wealth to disempower the politically powerful entities it spent its dollars buying off that caused the tailspin. Despite this reality, right-wing ideologues abroad have weaponized this crisis to attack advocacy for a more redistributive system in their own countries, the United States in particular.

Per the oft-repeated theme on Fellow Travelers, the left – lacking robust discourse on international relations – has not engaged this argument, ceding ground in a debate with implications for public policy at home. What’s more, the American left currently offers no new policy recommendations for how the US government could ensure that these situations are not repeated elsewhere. There are at least three policy objectives that the left could begin advocating today that would reduce the risk of Venezuelan-style crises in the future.

First, given the Venezuelan government’s perpetual struggle to safeguard its legitimacy, the US government should avoid worsening the problem by engendering the view that Caracas is incapable of protecting the country’s sovereignty. Second, international financial institutions like the World Bank and the Inter-American Development Bank must develop better potential policy options that not only underscore the consequences of elite patronage, but also develop politically viable solutions for governments that are structurally fragile. Finally, the United States should encourage governments to cooperate with these institutions by firmly disavowing the advancement of a narrow, nationalistic foreign policy agenda through these bodies while simultaneously discouraging the imposition of conditionalities like austerity that are punitive to the general welfare of the people

But these policy recommendations cannot be implemented in earnest without first understanding the challenges facing Venezuela. And the reactionary misinterpretation of the ongoing crisis does harm to the crafting of both our domestic and foreign policies.

Yong Kwon studied economic history at the London School of Economic and moderates the subreddit r/EconomicHistory. He is currently the Director of Communications at the Korea Economic Institute of America, which is registered in the United States under the Foreign Agents Registration Act as an agent of a public corporation established by the Government of the Republic of Korea. Views in this post are his own and do not represent the official position of the Korea Economic Institute of America.