Venezuela crisis - a result of a long term tendency programmed in institutions

A crisis in Venezuela is widely discussed by various news sources, journalists, writers, scholars and bloggers, all seeking to offer an opinion or an insight into the political, economic and humanitarian disaster. It is no longer a local crisis but an issue that has crossed borders and is affecting other countries in the Latin America region. Because of the complexity of the issue and its disastrous effects it is important to ask questions and seek answers. There are two main theories explaining the Venezuela crisis - the theory blaming the 21st century socialism and the resource curse theory. However, both of these theories fail to notice and explain the repetitive nature of the economic crises in Venezuela. To explain the repetitive cycle of the crises it is important to look at long-term variables that affect country’s economy and development - the political and economic institutions. The main question this bachelor thesis is trying to answer is how do the policies of the 21st century socialism affect the extractive political and economic institutions in Venezuela? In hopes of finding the answer, this paper uses a method of a one case study and a theoretical framework crafted by Daron Acemoglu and James A. Robinson, which investigates inclusive and extractive political and economic institutions in a country and draws connections between the nature of dominant institutions and economic success. The authors note that inclusive economic and political institutions are a driving force for prosperity, development and economic success, while extractive institutions result in stagnation of the economy, political instability and crises. The policies of the 21st century socialism are extractive in their nature, despite promises to abolish poverty and inequality, as well as create a democratic system based on participatory democracy model. Although they are not nearly as old as some other consolidated institutions in Venezuela, they still manage to be a strong source of political influence through interaction with other institutions. This interaction is crucial to the development of the state and its political and economic condition, therefore this paper is trying to find whether the hypothesis, which states that the socialist reforms in Venezuela, despite promises to turn the situation around, have strengthened the negative qualities of extractive political and economic institutions, resulting in a major crisis, is correct. The main tasks of the thesis: a) to present and compare the most popular theories explaining the Venezuela crisis; b) to introduce the theory of institutions crafted by Daron Acemoglu and James A. Robinson and adapt it to the case of Venezuela; c) to discuss the 21st century socialism and its policies; d) to investigate the effects the socialist policies have on extractive political and economic institutions in Venezuela. The results of this research show that extractive institutions have always been present in Venezuela, long before the consolidation of the 21st century socialism, and have had a repetitive impact on the country’s political system and the economy, resulting in cycles of crises. The policies of the 21st century socialism, through interaction with classical institutions, served as a catalyst to political and economic crisis. It is safe to say that economic crises in Venezuela will continue to reappear as long as extractive political and economic institutions remain in place. Sustainable growth and development are only possible with the consolidation of inclusive political and economic institutions. This thesis lays ground for further research on Venezuela crisis. It has value because it can explain the repetitiveness of economic crises, something most other theories fail to do. The results of this paper can also relate to other socialist countries in the region or countries with extractive political and economic institutions