Zimbabwean President Robert Mugabe (L) greets Venezuelan President Nicolas Maduro (R) before the opening ceremony in the Non-Aligned Movement summit in Margarita Island, Venezuela, on September 17, 2016. Source: Juan Barreto / AFP.
Venezuela and Zimbabwe were both once among the most prosperous economies in their regions. When Zimbabwe gained independence in 1980, it was referred to as the “breadbasket of Africa.” Around the same time, scholars described Venezuela as “a textbook case of step-by-step progress” offering “the only trail to a democratic future for developing societies.” However, when one looks at these countries today, another story is evident. Venezuela’s per capita income began stagnating in the mid-1970s and went into free fall in the early 2010s, contracting by at least 71 percent. In the case of Zimbabwe, the collapse began in the second half of the 1990s and incomes declined by at least 40 percent. How, then, did these two success stories become the posterchildren for economic collapse?
Much of what has been written about the economic fortunes of these countries emphasize poor policy choices—a wasted oil boom and dysfunctional exchange controls in Venezuela, a botched land reform and costly military adventures in Zimbabwe, and kleptocratic elites in both countries. While there is much truth to this, this story is incomplete. Both Nicolás Maduro and Robert Mugabe were skilled at weathering all types of political storms—not exactly the best candidates for the charge of being incompetent or foolish. Venezuela and Zimbabwe are examples of a dangerous phenomenon—politically-induced growth collapses. These are episodes in which political actors adopt strategies that generate severe negative economic outcomes in order to remain in power. When they do so, the struggle for control can turn the economy into a political battlefield—with dramatic consequences.
MUGABE’S SCORCHED EARTH ECONOMICS
In Zimbabwe, much of the decline in output can be traced to the collapse in agricultural productivity that followed the large-scale arbitrary and violent land confiscations carried out as part of the country’s land reform program. In early 2000, government forces and vigilante groups began forcibly taking over land owned by white settlers. Many of the resettled farmers lacked the necessary capital—human and financial—to invest in cash-crop farming. The destruction of the agricultural base adversely impacted the agroindustry, reducing exports and saddling the banking industry with non-performing loans.
What is often forgotten is that Mugabe had already been pursuing land reform policies for two decades under a voluntary model in which land transfers were being done through voluntary sales. The system had worked fairly well, redistributing four million hectares to around 70 thousand families. During that period, Zimbabwe saw positive economic growth of nearly one percent per year during a period in which sub-Saharan Africa as a whole was contracting.
So, it is not that Mugabe did not know how to do a land reform that was compatible with economic efficiency. Yet, he decided to shift to a more aggressive confiscatory policy that ended up destroying agricultural productivity for political reasons. In February 2000, Zimbabwe’s voters had stunningly rejected his proposal for a constitutional reform that would have strengthened presidential powers. Four months later, opposition candidates had nearly won control of parliament, taking 57 of 119 seats (they had previously had zero). These events were unprecedented and Mugabe’s ZANU-PF party began seeing a distinct likelihood of losing power.
Only one month after the parliamentary election, the government announced the overhaul of land policies and the launch of a “fast-track” land reform program. The beneficiaries of the reform were, by and large, not the poor and the landless, but rather so-called war veterans and pro-government political activists. The losers of the reforms were the large-scale farmers, who had favored the opposition. Insecure property rights allowed Mugabe to keep his followers on a short leash, as land could be taken away at any time by the president and the party. Through the fast-track land reform, Mugabe killed two birds with one stone—weakening the opposition while strengthening his grip on the party and power.
HOW ECONOMIC CHAOS HELPED MADURO
As was the case in Zimbabwe, Nicolás Maduro manipulated market forces for political gains on the eve of a key election. Maduro had been elected to the presidency in a snap election in 2013 following President Hugo Chávez’s death. His slim victory in that election as well as the fact that many voters seemed to have supported him more out of loyalty to the late socialist leader than enthusiasm for his candidacy, meant that he would begin his presidency with limited political capital. Large fiscal and economic imbalances left by his predecessor, led Maduro to take some unpopular policy decisions—including a large devaluation of the exchange rate and sizable import cuts—further depleting his political capital.
Less than a year after taking office, polls indicated that his party was about to lose a key municipal election—an election that was seen as his first real political test. He needed to do something dramatic to avert defeat, and he did. Exactly one month before the election, Maduro accused the owners of Daka, one of the country’s largest electronics retailers, of price-gouging. The following morning, looting broke out at a Daka store. The government proceeded to order the military occupation of three large electronics retailers. Many Venezuelans applauded and Maduro got a boost in his approval ratings—allowing his coalition to coast to victory.
The economic consequences of Maduro’s decisions were stark. Venezuela plunged into recession as retailers preferred to close shop rather than run the risk of being the next Daka. Maduro also began relying on printing money to increase public spending ahead of elections—delivering tangible short-term political benefits at the cost of longer-term monetary chaos. The Dakazo is just one example of the policies adopted by Maduro that appeared to make little economic sense, but that enabled him to tighten his grip on power. A massively overvalued official exchange rate, large subsidies to domestic gasoline consumption, and a system of price controls significantly affected the economy. Yet they allowed the government to transfer substantial rents to its cronies while claiming that it was protecting consumers from the ravages of speculators.
Yet it was not just Maduro’s policies that generated aggregate productivity losses. While poor policy choices caused a long and sustained decline in economic productivity that predated the worsening political conflict of the mid-2010s, the decline of more than ninety percent in oil revenues after 2014 threw the economy into a tailspin. Recent research, including several papers by one of the authors, shows that U.S. oil and financial sanctions—which the opposition actively lobbied for—significantly contributed to the decline in oil production. Opposition leaders were well aware that these impacts could materialize but decided that it was a risk worth running if it meant higher chances of driving Maduro from power. For both sides of the country’s political divide, the welfare of Venezuelans took a back seat to winning the all-out struggle for power.
CAREFUL WHAT YOU WISH FOR
It is no coincidence that the two countries are among the most notable cases of hyperinflation in the twenty-first century. Both Mugabe and Maduro proved apt at weathering the political storms caused by their economic policies and remained in power through a combination of granting selective incentives to supporters and carrying out targeted repression against opponents.
The economies of Venezuela and Zimbabwe became political battlegrounds because the cost of losing power was too high. In both cases, the high political stakes were a consequence of the nation’s prior history. In 1999, Venezuelan leader Hugo Chávez had pushed through a constitutional reform that turned the presidency into an all-powerful institution. In 1980, Robert Mugabe reached power following an armed insurgency against a white-ruled government. As a result, in contrast to neighboring South Africa, which saw a peaceful negotiated transition, there were fewer checks on presidential authority.
Political growth collapses are cautionary tales of what happens when societies lose their ability to manage conflict. Among the key risk factors for falling into economically destructive political conflict are having high levels of political polarization and dismantling constraints on executive power. It is worth bearing these in mind when one hears even well-intentioned calls for reducing the power of the judiciary or eliminating supermajority requirements in democracies. One reason why constraints on the power of elected officials are vital to democracies is because they limit the power of the executive branch. Governments that acquire more capacity to manipulate the economy for political ends can turn the economy into a political battlefield. So, if you are thinking that making the presidency more powerful is good for democracy, you may want to think again. Many Zimbabweans and Venezuelans thought the same.
The findings discussed in this paper come from a working paper recently released by the authors of this article.
Patrick Imam is Deputy Director of the Joint Vienna Institute and a former resident representative for the International Monetary Fund in Zimbabwe.
Francisco Rodríguez is the Rice Family Professor of the Practice of Public and International Affairs at the Josef Korbel School of International Studies of the University of Denver.