Socialism Is Destroying Bolivia And Adding To Hemispheric Woes

People don’t often think of Bolivia; it’s a small country in the heart of South America. But whenever it is mentioned, aside from mountains and llamas, people think about socialism and Evo Morales. Some even go so far as to call it a “socialist miracle” due to its economic and monetary stability in the 2010s. However, this perception is far from reality.

Bolivia’s current political party, Movimiento al Socialismo (“Movement Toward Socialism”), has been in office for over 17 years, with the exception of the temporary government of Jeanine Áñez, which lasted only one year, from November 2019 to November 2020.  Operating for almost two decades under a socialist regime has taken a toll on the Bolivian economy, and the symptoms are just starting to show. To give a sense of the problems, here are 5 socialist policies that have destroyed the Bolivian economy:

1) Nationalization of Natural Resources

Bolivia was poised to experience one of the biggest “economic booms” and investment opportunities with the hydrocarbon industry (natural gas), which was built by private entities in the 1990s and early 2000s. However, the 2009 constitution under Movimiento al Socialismo, specifically Article 311, nationalized this industry and almost every other natural resource, ranging from water and minerals to electricity. When natural gas prices peaked internationally in 2012, the income, which had become part of the public industry, was squandered on vain public projects, subsidies, salaries, and overall excessive public spending (or “public wasting,” more accurately termed).

2) Conditional Private Property

In the 1980s and 1990s, efforts were made to strengthen private property rights in Bolivia. However, Bolivia’s 2009 constitution rewrote the rules regarding private property, declaring in Article 56: “Everyone has the right to individual or collective private property, provided that it fulfills a social function.” Even though the state does not deliberately expropriate property from citizens, Article 56 adds a level of ambiguity when it comes to protecting this fundamental right. It’s not unheard of to have your property in the countryside invaded and expropriated by locals, be unable to evict a tenant who hasn’t paid rent for months or even years, or suddenly find people building a house on your property (even inside the city). The lack of property rights scares investors away and greatly hinders Bolivian businesses.

3) From 3 Ministries to 17 Ministries and 22 Vice Ministries

Before Movimiento al Socialismo came to power, Bolivia’s executive branch had been managed by the President, Vice President, and “the big three” Ministries. This changed drastically after their victory in the December 2005 election. Since assuming power in January 2006, the party has gradually created more ministries and public offices, each more unnecessary than the last. The creation of new public offices serves as an excuse to create more “state parasites,” as Bastiat said, diverting able-bodied individuals from creating value in society. Here are a few examples of these ministries to illustrate their absurdity:

• Ministry of Environment and Water
• Ministry of Cultures, Decolonization, and De-patriarcalization
• Ministry of Productive Development and Plural Economy
• Vice Ministry of Coca Leaf and Integral Development
• Vice Ministry of the Fight Against Smuggling

We learn two things from these ministries: that they don’t add value to society and that socialists are highly creative when naming offices.

4) Over 60 State-Owned Businesses

The government’s economic model is called Modelo Económico Social Comunitario Productivo (“Social Economic Productive Community Model”—again with the creative names). This “model” is ambiguous, has a social character, and essentially puts the state at the center of economic progress and development, declaring it their duty. For this reason, the government has created over 60 businesses, all of which are deficit-prone and arbitrary to the economy. For example, Quipus, the state-owned electronics company intended to “promote technology use in Bolivia and public schools,” incurred losses of around $5.5 million in the span of five years since its creation (and it’s still operating). These businesses are kept afloat out of greed and arrogance, just as Hayek’s The Fatal Conceit suggests.

5) High Taxes and a Bureaucratic Tax System

Bolivia has one of the worst taxation systems in the world, ranked 186 out of 190 countries according to the World Bank’s Doing Business report. This is due to a mix of bureaucracy and exceedingly high “tax pressure” on its citizens. According to Doing Business, Bolivians spend 1,025 hours every year to pay their taxes properly (over 42 days!) and risk paying a rate of 83.7 percent of their profits if they don’t file them correctly. A study by economic analyst Diego Sánchez de la Cruz labeled Bolivia as the “tax hell” of Latin America, ranking it the worst in tax pressure and tax effort. Sánchez de la Cruz conducted his study by comparing GDP and tax rates, explaining: “It is not the same to collect 30 percent of GDP in a rich country as in a poor country.” The tax situation in Bolivia has driven 80 percent of the economy to become informal, or not officially registered in the economy.

The Fruits of Socialism

Bolivia is far from a “socialist miracle,” as it has undergone a series of socialist policies that have heavily hindered its economy, preventing growth and development. We might not have seen this damage in the 2000s and 2010s, but now that the natural gas reserves have been depleted, we will witness the consequences of socialism sooner rather than later. Economic effects are typically seen in the long run, and Bolivia is no exception. Movimiento al Socialismo reaped the benefits of the pro-market economic reforms of the 1980s and 1990s, but now Bolivia is beginning to harvest the fruits of nearly two decades of socialism: crisis, misery, and decay.

Fabricio Antezana Duran is a Hazlitt Fellow and Intern for FEE’s Spanish Hazlitt Project (Proyecto Hazlitt). Fabricio Antezana Duran es Hazlitt Fellow e Interno para el Proyecto Hazlitt en Español.