SORAnomics (our proposed alternative science to Economics) uses the Value-Trade Theory to diagnose the economic health of societies according the maxims of Adam Smith. A society, whether it be a family, corporation, or country, is wealthy if its productivity (value produced) exceeds its own demand (value needed). This productivity is shown in the “Industry” column (below) while its demand is shown in the “Demand” column. A society is wealthy if its Industry bars are higher than its Demand bars and poor if it is lower. Societal industry is dependent on capital and influenced by trade. Capital is anything that produces value via Industry while Trade is any exchange of the valuable produce of that Industry.

We start our analysis at 1999 when Chavez came to power and before his policies were fully implemented. We compare this to 2013, the year which has the latest data and when his policies have had its full effect. We include 2007, as the middle point between the two years to establish a basic trend.

• 1999 (black bars): The low Capital, Industry and Trade columns indicate that the country was in recession. As this is the starting point of our analysis, we shall not discuss the roots of this recession.
• 2007 (gray bars): Venezuela’s Capital, Industry, and Trade all rise relative to its 1999 proportions much greater than the rise in demand or population. This indicates a better economic condition for its population as industry is catching up to demand.
• 2013
  • Capital: The rise of the employment (Capital) column becomes less, relative to 2007. A 9% unemployment indicates that its economy is still far from running on all gears as 2-4% are the ideal numbers, despite 13 years of policy. Although the current employment levels are not so good, it is still an improvement from the previous years.
  • Industry: More surprisingly, its Industry column has declined, instead of rising with the Capital column. Normally industry rises together with capital.
  • Trade: Normally, if industry is low, then trade must be low as well, as a person can only sell whatever he has in stock. So why is 2013 GDP much higher than in 2007?

    The reason is that oil prices rose in 2013. This means that the 2013 GDP increase is not sustainable.

    
    Update 2020: Oil prices started falling on Oct 2014, one month before this post was written

Now that we have pinpointed the cause of Venezuela's problems to low industry, we need to find out the specific policy changes between 2007 and 2012 that led to a decline in industry in 2013. The two main culprits are:

• Price controls from 2003

  These were enacted from 2003 and have gradually drained production. In SORAnomics, price controls are a short-term emergency measure during shortages such as famine, war, and disaster. Long-term price controls can mask the real supply situation, since uncontrolled prices indicate the actual supply available. Instead of letting prices rise, the government shuts down or nationalized companies, leading to even lesser production.

• Expropriations from 2007

  Nationalization and land redistribution changes the ownership of assets from those who were skilled in making them productive, to bureaucrats and rent-seekers whose main skill is to gain favor. We see that this has the biggest impact of all. In fact, price controls merely lead into nationalizations, which is the real and direct cause of the decline in industry.

Part 2  will discuss the solutions