The Poverty of Venezuela

A Don Boudreaux letter to the Washington Post:

Matt O’Brien writes that “Venezuela, by all rights, should be rich.  As we just said, it has more oil than the United States or Saudi Arabia or anyone else for that matter” (“Venezuela should be rich. Instead it’s becoming a failed state,” May 4).

As Mr. O’Brien’s report itself shows, however, a people’s wealth is not determined by the quantity of raw materials that happen to exist within those people’s political jurisdiction.  Instead, a people’s wealth is determined by how well their institutions and their attitudes encourage market-directed trade, commercial innovation, and entrepreneurial risk-taking.  If such activities are encouraged, wealth for the masses is produced; if such activities are discouraged, the masses remain impoverished.

Witness rich Hong Kong, which has few natural resources yet buzzes with the busy-ness of capitalism.  Likewise, witness Tucson.  It’s in a literal desert and yet its people are among the richest on earth.  The prosperity of Hong Kong and Tucson proves that a free and innovative people produce great wealth by shipping and trucking in from around the globe whatever resources are useful for improving their living standards.  Such resources need not be originally located within their political jurisdictions.  In contrast, the poverty of Venezuela and Nigeria proves that the existence of resources within a people’s political jurisdiction does nothing to enrich those people if in their attitudes they scorn commercial activity or through their government they severely obstruct the operation of free markets.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercator Center
George Mason University
Fairfax, VA  22030

The above originally appeared at Cafe Hayek.