Before Venezuela's Economy Collapsed, Its Courts Did

In 2000, Venezuela's economy looked much as it had a year earlier. Its courts did not.

Hugo Chávez won Venezuela's presidential election in December 1998 and took office two months later. By 2000, output per person (the value of everything a country produces, divided by its population) was still close to its 1998 level.

Changes in the law moved much faster. The Varieties of Democracy project scores countries from 0 to 1 on how impartially their laws are enforced and whether their own officials obey them. Venezuela's score fell from 0.51 in 1998 to 0.21 in 2000, from the middle of the scale to its lower end. In 2025 it was below 0.01, tied for last in the world. Its economy would not peak for more than a decade.

That sequence matters to Americans because public ownership of the economy is on the table here now. The Democratic Socialists of America would put the country's biggest companies and its essential industries under government ownership. A program like that is usually judged by what it does to prices, wages and growth, and those can take years to show. Venezuela points to something that can be checked much sooner. The legal protections that let ordinary people keep what they own started failing long before the economic numbers turned.

The law fails first under such regimes because of what public ownership requires. A factory or a utility already has owners, and the law protects their claim to it. To take it over, a government has to rewrite that law or stop enforcing it, and the owners who object have to be quieted. In the United States, the Constitution protects private property from government.

Venezuela's free-expression score fell alongside its rule of law, from near the top of the scale in 1998 to near the bottom by 2025. By then its rule-of-law score was effectively zero. These scores are expert judgments with a margin of error, but a fall that large is hard to dismiss.

The economic record needs a yardstick, and a comparison with Chile supplies one. In 1998 both countries were Latin American resource exporters producing almost the same output per person. Venezuela moved toward state ownership, while Chile kept a market economy. By 2022, the average Chilean produced 4.3 times as much as the average Venezuelan, and Venezuela had fallen to about a third of its own 1998 level, below where it stood in 1950.

Even those figures are outside estimates, because Venezuela did not publish national statistics for most of these years. That silence is a result in its own right.

For a decade, oil money hid the damage. Venezuelan output per person climbed to a peak in 2012 due to high oil prices rather than domestic policy. The collapse came after oil prices moderated, to an economy whose legal protections had already been removed.

Another measure is who left. Nearly 7 million Venezuelans now live elsewhere in Latin America and the Caribbean alone, more than a fifth of its population, and the true number is likely higher.

The strongest objection is that oil, not ownership, undid Venezuela. It depended on oil revenue more heavily than Chile did, and the price collapse of 2014 to 2016 hit it hard, followed by U.S. sanctions. What that ignores is the fact that after the rule of law gave way between 1998 and 2000, predatory government policy drove most foreign companies and investment out of Venezuela and destroyed domestic businesses. As a result, when oil revenue decreased, its economy could not meet the needs of its people. Oil masked the damage until prices fell. In the United States, no equivalent commodity could cushion a decade of harm. Economic damage would be evident far more quickly here than in Venezuela in the 2000s.

Putting an industry under public ownership is a legal act before it is an economic one. The property belongs to someone, and the government has to change that law, decline to enforce it, or compel the owner. Nothing in that step depends on what a country exports. It is also the step a citizen can watch happening without waiting to learn whose economic forecast was right.

The fact that Venezuela was a dictatorship does not, alone, explain its failure either. In 1980, under Augusto Pinochet, Chile was far less free than Venezuela. Its free-expression score that year was lower than China's, Cuba's and Vietnam's. A market economy does not guarantee liberty. Chile's freedoms came back after its 1990 transition to democracy, while Venezuela's went the other way.

The American Constitution addresses this conflict directly. The Fifth Amendment bars the government from taking private property for public use without just compensation. That one rule protects a family's house and a shop's equipment the same way it protects a corporation's plants. A government that wants to own an industry has to pay for it or set the Constitution aside. Venezuela shows what setting it aside looks like.

For a reader in Western Pennsylvania, the useful lesson is a question: What happens to the owner who says no to government taking over of his property? That answer does not depend on an economic forecast, on the price of a commodity, or on how diversified the economy is.

In Venezuela that answer was on the record within two years. Whether the economy would have unraveled sooner without the oil boom is arguable. That the owners had already lost the law's protection is not.