What is the economic legacy of Hugo Chávez? A common criticism is that by changing how Venezuela sliced its economic pie, he also reduced the size of the pie for his fellow citizens. The Venezuelan economy did perform dreadfully through much of his presidency, and it continues to suffer from high inflation and rising debt. But when you strip away the ideological debates about Chávez's 14-year tenure and just look at the numbers, it's not entirely clear that he left Venezuelans worse off.
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A happy recent development in economics has been the recognition that increases in equity and efficiency can go hand in hand, especially when inequality has reached a level that threatens living standards for everyone. In the 1990s, Venezuela may well have reached that level. The country had high inequality in incomes and one of the most inequitable distributions of wealth -- at least judged by land -- in the world. As research by the International Monetary Fund has suggested, so much inequality can indeed reduce economic growth. The reason is simple: The wealthy can grab economic opportunities that might be a better fit for poorer people with more suitable talents.
Of course, economic theory also suggests that too little inequality can stifle growth completely. In a socialist state of the kind Chávez professed to pursue, incomes would be equal regardless of effort. Notwithstanding the commitment of ardent socialists to their national project, workers' effort might lag, resulting in an economy that failed to fulfill its productive potential.
So what happened in Venezuela? Chávez undertook an enormous agenda to redistribute income and wealth through a variety of social programs and the nationalization of assets in industries ranging from agriculture to telecommunications. According to the Venezuelan government's statistics, inequality did eventually fall quite a bit during his time as president, or at least through 2009.
Four years later, the end of Chávez's rule has left two big questions for economists: First, were his programs truly responsible for the reduction in inequality? And second, did these changes in the distribution of income result in more growth or less?
Though it's never possible to compare a country's economic history to what might have taken place with difference policies -- you only live once -- in this case the timing of the trends offers some answers. Inequality in Venezuela didn't start dropping until 2006, seven years into Chavéz's presidency. So if the incomes of the poor were increasing during that time, the incomes of the rich had to be increasing at the same rate.
Assuming the Venezuelan figures on inequality are correct, the most likely explanation is that the steep climb in oil prices starting in 2004 allowed Chávez to spend much more on programs for the poor, including those that raised their incomes merely by distributing cash. At the same time, by taking over private assets that would have gained value because of higher oil prices, he may have prevented rich Venezuelans from profiting during the boom.
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