In January 2007, the recently re-elected Hugo Chávez sent what New York Times described it as a “chilling message for foreign investors”.
“Let it be nationalized,” the Venezuelan president said of CANTV, the country's largest telecommunications provider. “Everything that was privatized will be nationalized.”
In the following years, Chávez would keep his word. The socialist tightened control over Venezuela's economy nationalizing several industriesincluding gold mining, banking and transportation.
Although many Westerners applauded the action, Chávez's nationalization move would be disastrous.
Venezuela's Gross Domestic Product (GDP), which was US$316 billion in 2008, fell to US$288 billion in 2016. When Chávez's successor, Nicolás Maduro, accelerated expansion of Venezuela's money supply To try to stimulate economic growth, GDP plummeted even further, and soon hyperinflation arrived. Venezuela's central bank estimates that between 2016 and 2019, Venezuela experienced a inflation of just under 54 million percent.
In 2019, 96% of Venezuelans lived in povertyand 79% lived in extreme poverty, causing a mass exodus of around 4.6 million Venezuelans.
In Argentina today, something very different is happening.
Argentina, the second largest economy in South America, behind only Brazil, saw its annual inflation rate reaches 161% in November, as a result of massive expansion of its money supply.
But the Argentines chose a different path.
In November, the country elected libertarian Javier Milei as its new president. And while Hugo Chávez said, “Everything that has been privatized will be nationalized,” Milei is essentially saying the opposite: “Everything that has been nationalized will be privatized.”
Milei started cutting in half the number of federal ministries in Argentina, reducing them from 18 to nine. This was followed by a massive devaluation of the currency.
Milei didn't stop there. In a recent televised advertisement, he he said which would “repeal rules that prevent the privatization of state-owned companies.”
These words were backed by a order of 300 measures designed to deregulate internet services, eliminate various government price controls, repeal laws that discourage foreign capital investment, abolish the Ministry of Economy's price observatory and “prepare all state-owned companies for privatization.”
Milei ended this on Wednesday with a 351-page omnibus bill which targets Argentina's regulatory state and would grant Milei emergency powers “until December 31, 2025.”
Giving any president emergency powers is no small feat, even during a genuine crisis. Although Milei's bill is designed to contain state power, not expand it — a notable contrast to the typical crisis response paradigm — the history and recent events in El Salvador show how emergency powers can be abused and used to violate human rights and freedoms.
Whether Milei can advance her entire agenda is unclear, but there is reason for optimism.
His surprising election is in itself evidence that Argentines are eager for change. He has already shown impressive pragmatism and undeniable political talent, surrounding himself with a host of talented policy experts. This includes Federico Sturzenegger, the former chief economist at Argentina's central bank who, two decades ago, managed to turn around the failed Bank of the City of Buenos Aires. Sturzenegger's reforms were so effective that they became a Harvard case study.
Success is far from certain, of course.
Recovering from decades of Peronism — a mix of socialism, nationalism and fascism that dominated Argentina's political system for years — won't happen overnight. And Argentina's political class has spent the last few years worsening an already bad.
Yet the great economist Adam Smith once observed that the key to economic prosperity is surprisingly simple.
“Little else is needed to raise a state from the lowest barbarism to the highest degree of opulence, except peace, low taxes, and a reasonable administration of justice,” said the author of the Wealth of Nations.
Milei knows this. He not only read Smith (as well as Austrian School economists such as Friedrich Hayek and Ludwig von Mises). On a 2017 profilehe called himself “the heir of Adam Smith.”
A good dose of Adam Smith is precisely what Argentina needs, and Milei correctly diagnosed the problem with Argentina's once-prosperous economy.
“The state does not create wealth; it only destroys it,” said Milei in a Widely watched interview in 2023.
The United States' economic trajectory is more than a little alarming, which is why Americans should pay attention to events in South America.
In the coming decades, as the federal debt continues to rise, interest payments on federal debt increase, and the purchasing power of the dollar is further eroded, we will likely face a choice similar to that faced by Venezuelans and Argentines.
Shall we choose Chávez or Milei?
Copyright 2024 Foundation for Economic Education. Published with permission. Original in English: Will America Choose Javier Milei or Hugo Chavez?
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