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Venezuela's extractive institutions led to economic collapse from "summary" of Why Nations Fail by Daron Acemoglu,James A. Robinson
Venezuela's extractive institutions, which concentrate power and wealth in the hands of a few elites, have been a driving force behind the country's economic collapse. These extractive institutions have stifled competition, innovation, and investment by creating a system where the ruling elite benefits from maintaining the status quo. This has resulted in a lack of economic diversification and over-reliance on oil revenues, leaving the economy vulnerable to external shocks. The Venezuelan government's control over key industries and resources has led to inefficiency, corruption, and mismanagement. Instead of promoting a level playing field for businesses to thrive, extractive institutions have favored those with political connections, leading to widespread cronyism and rent-seeking behavior. This has further discouraged productive economic activity and hindered the development of a dynamic private sector. Moreover, the lack of property rights and the rule of law in Venezuela have undermined investor confidence and deterred foreign investment. Without secure property rights, individuals and businesses have little incentive to invest in long-term projects or engage in productive activities that could drive economic growth. This has perpetuated a cycle of economic stagnation and decline, as the country continues to struggle with hyperinflation, shortages of basic goods, and a deteriorating quality of life for its citizens. In contrast, inclusive institutions that promote competition, innovation, and equal opportunity have been shown to be the key drivers of economic prosperity in successful nations. By creating a level playing field for all individuals and businesses, inclusive institutions encourage entrepreneurship, investment, and economic diversification. This, in turn, leads to sustainable growth, job creation, and improvements in living standards for the population as a whole.- Venezuela's extractive institutions have played a central role in the country's economic collapse by concentrating power and wealth in the hands of a few elites, stifling competition and innovation, fostering corruption and inefficiency, and undermining investor confidence. Without a fundamental transformation of these extractive institutions towards more inclusive ones, Venezuela is likely to continue its downward spiral into economic ruin.
