COMPARE

AND CONTRAST OF
TWO ECONOMICAL SYSTEMS
Venezuela vs USA
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Student A
E-9b
Michael Soeldner
I&S
Compare and contrast of two economical systems

Venezuela and USA

Venezuela statistics

Location: Northern cost of South America, next to

Colombia.

Population: 30.5 million.

Religions: Roman Catholic (96%), Protestant (2%) and

others (2%).

Economic system: Controlled with a small majority of

big private businesses.

Inflation: Around 62.2%

GDP: 538.9 billion.

Status of economy: In decline.

The Venezuelan economic system

The Venezuelan economy is currently not very stable, mainly because of uncontrolled and unwise
spending by the government which has affected the daily life of most of the countrys population.
The economy as a whole is mixed, meaning that both planned economy and free market economy is
found in the country. However, Venezuela has its biggest income from the oil thats located in many
parts of the country. This oil is governmental property, and is therefore planned by the government.
Many people own small business, but unless an individual is grown up wealthy, the country offers
poor economic freedom. This means that not many have the opportunity to produce and sell their
own products. This suggests that the system use socialism after the governments preference,
making decisions without or little of the peoples support or agreement.
Venezuela therefore have a lot of corruption, smuggling and a high crime rate, even though the
government do sit on some useful resources and money.

How does the government deal with the key economic questions?

The main questions that every country has to meet and answer are:

What are we going to produce and for who?

How are we going to produce it?

Who makes the decisions?

These questions are the basics in a countries economy and different companies, producers and
groups have to answer these questions when producing a product.

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Student A
E-9b
Michael Soeldner
I&S

What are we going to produce and for who?

Venezuela has for long had a big problem meeting the need of supply. This means that Venezuela
has problem producing enough goods. However this isnt because of the lack of resources, but
because of the inflation rate. Inflation is when prices go up while the countys currency goes down.
This meant that while the prices of food, clothing, luxuries and other costs rose, the currency was
worth less. In 2015 the inflation had risen 180.9% since 1975, reaching one of the world highest.

The shortage of consumer goods are also that they simply do not have enough money for enough
labour (workers), as the Venezuelan government have previously been unwise with their spending of
money. They have stopped the flow of currency as much as they have been able to, to limit the
countrys spending.

How are we going to produce it?

Venezuela have a lot of natural resources. Their landscape have a lot of forests, which gives the
country potential to export a lot of fine wood types, furniture and other wooden craftworks. They
also have a lot of minerals such as gold, iron, diamonds and bauxite. These can be worth a lot when
exported, but is not really bought inside the country itself, as a lot of the people do not have the
money to buy it. Venezuela have one of the biggest amounts of oil too. However, these resources
are of course limited, but the problem is that the working force is not very big or progressive. As
mentioned above, the inflation cause a shortage of labourers consequent by the shortage of goods,
which then means that the workers get less money as the company they work for simply doesnt
have enough money to pay a reasonable price to the workers (and as the inflation is so high they
would need more money).

Who makes the decisions?

The last key economic question is that of who is going to make the big decisions about production.
Mostly it is actually the state and government, as they want to control what they produce so that
they can keep track on investment and such. Even if a big company makes decisions concerning their
businesses, the state is often involved and the decision is finalized within a bigger group of people.

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Student A
E-9b
Michael Soeldner
I&S
The Venezuelan GDP

Per capita (USD)

Country (USD)
2007

$8329
GDP 2012
$381.3 billion

Minerals Agricultural products

Venezuela mine a big Venezuela have a lot
amount of minerals such Key industries of agriculture

as gold, iron, aluminium because of the
and bauxite. In 2003, a countrys
total of 5.3 million environment. They
tonnes of bauxite was export fish, corn,
mined. meat and fruits,
making up 10% of
their GDP
Oil and petrol
2008

$11223 Venezuela produce thousands 2013
tonnes of crude oil and 2014 $371 billion

$509 billion
petroleum. It was the tenth
biggest oil producer in 2008,
2015
and is still very important for $226 billion
the global oil market. More

2009 than 50% of the GDP is from
$11524 oil.

Venezuela Country GDP timeline

2010

13559 600 509
Amount USD (billions)

500 381.3 371

400
300 226
2011
200
$10727 100 0

0
Year 2012 2013 2014 2015

Years
The data gathered and presented in the diagram above first shows

an increase in the annual GDP growth rate. Between 2012 and
2013 the GDP had a slight drop. GDP drops or decreases often
occur when a country has had bad production rate. This could be
2012
2013 because inflation was higher during this period, less labour force
$12728
$14414
and more limited resources.
It then rose again, but had a huge drop in 2015 because of one of
the worst production rates, causing a negative GDP growth.
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Student A
E-9b
Michael Soeldner
I&S

GDP per capita timeline

16000 14414
13559
GDP per capita USD (thousands)

14000 12728
11223 11524
12000 10727

10000 8329
8000
6000
4000
2000 0
0
2007 2008 2009 2010 2011 2012 2013

Year

The diagram above represent the GDP per capita over a few years. The GDP per capita is the average
of what the average income earner earns a year. As you can tell, the income a year is very low
compared to other countries and the average person has an income classified as low. This also
means that the average person in a population of 30.5 million people is on the verge of poverty.
Looking at the graph, the GDP per capita was for the first 4 years increasing steadily. It then had a
drop in 2011, a year when inflation was high and the factories could not pay workers as much for
example. The economic situation then recovered and began to rise again.

What countries does Venezuela trade with?

Venezuela mainly produce and export oil. As it is a South American country, it is important for the
surrounding countries as an oil source, and therefore export oil all over South America, but also
other continents. It also export a lot of agricultural products to nearby countries. Venezuelas main
export partners are:

The U.S, 40% of production is exported to the U.S.

Caribbean, 31% export.
China, 11% export.

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Student A
E-9b
Michael Soeldner
I&S
India, 6% export.
Cuba.
Colombia.
Brazil.

Venezuela also import a lot of products, as it has limited sources and cannot produce everything that
is required for the economy, and demanded by the people, inside the country. The country mainly
import chemical products, electronics, tobacco and beverages, agricultural products, livestock and
more. The main import partners are:

United States, 26% import.

China, 15% import.
Brazil, 9% import.
Colombia
Argentina
Mexico

What are Venezuelas sanctions?

Because Venezuela is part of the World Trade Organization, Venezuela has a wide range of trading
partners, and does not have any countries in particular that they choose not to trade with. However
they only trade with small parts of Europe, and barely any trading with Russia as Russia has better
suitable trading partners (as they would mainly import oil.) They did however just a few weeks ago
sign a trading contract with Russia, so the future exports and imports will be a lot with Russia.They
do not trade a lot with the Middle Eastern countries, as these are most oil rich countries.

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Student A
E-9b
Michael Soeldner
I&S

How did the 2008 financial crisis affect the Venezuelan economy?

Surprisingly Venezuela weathered the crisis better than expected looking at its current economic
situation. Because the country had already had huge inflation rates, some mayor banking problems
and economic crisis previously, they were more prepared than most other countries. In 2008 the
Venezuelan economy was in the lead of its neighbouring countries with an IR of $1300 per capita
and still had the highest IR after the crisis. However, the GDP was affected as the oil prices had a
drop and the market was chaotic. The drop caused the oil to be worth less, and the piece of a barrel
went down to USD $57, a world record low price for oil. This forced Venezuela to export as much oil
they could. As they were on of the top leaders in oil reserves and production, the oil did not risk
running out and they therefore managed to export a lot of the oil successfully. However, the
economic situation wasnt very well for some of Venezuelas trading partners, so the oil they sold
had to be sold for a cheaper price and didnt contribute with as much to the GDP as it had been
before. It cost more to produce though, and the price of a barrel reached $150! If going back to the
countrys GDP per capita graph, the period between 2008 and 2009 suggest that the production and
income only increased slightly. However it was still a positive growth rate, supporting that the
country did not suffer any mayor change from before. Data from the countrys GDP also suggest that
between 2007 and 2008 the GDP didnt show a mayor change.

However, there was a Central Bank crisis in 2009-2010, affecting the Venezuelan economy in many
ways. The cause of the crisis was that the government (Hugo Chavez as president had previously
taken over some of the mayor banks. Money was spent unwisely in questionable businesses and the
bank had some big debts after taking loans. Many private businesses took a huge stake from this
too.

Sources

Na. "Venezuela GDP | 1960-2016 | Data | Chart | Calendar | Forecast | News." Venezuela GDP |
1960-2016 | Data | Chart | Calendar | Forecast | News. Trading Ecomomies, 2016. Web. 03 Mar.
2016.

Na. "Venezuela." Economy: Population, GDP, Inflation, Business, Trade, FDI, Corruption. The
Heritage Foundation, 2016. Web. 03 Mar. 2016.
<http://www.heritage.org/index/country/venezuela>.

Na. "News: Economy." News: Economy. N.p., 1 Mar. 2016. Web. 03 Mar. 2016.
<http://venezuelanalysis.com/news/economy>.

Na. "South America: Venezuela." Central Intelligence Agency. CIA, n.d. Web. 01 Mar. 2016.
<https://www.cia.gov/library/publications/the-world-factbook/geos/ve.html>.

Sugget, James. "Economy of Venezuela." Wikipedia. Wikimedia Foundation, 29 Feb. 2016. Web.
03 Mar. 2016. <https://en.wikipedia.org/wiki/Economy_of_Venezuela>.

Na. "Venezuela Business." Venezuela - Business. Geographia, 2010. Web. 01 Mar. 2016.
<http://www.geographia.com/venezuela/business.htm>.
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Student A
E-9b
Michael Soeldner
I&S
Na. "Venezuela Unemployment Rate | 1999-2016 | Data | Chart | Calendar."Venezuela
Unemployment Rate | 1999-2016 | Data | Chart | Calendar. Trading Economies, 2016. Web. 28
Feb. 2016. <http://www.tradingeconomics.com/venezuela/unemployment-rate>.

Na. "Venezuela Trade, Exports and Imports." Venezuela Trade, Exports and Imports. Economy
Watch, n.d. Web. 03 Mar. 2016.
<http://www.economywatch.com/world_economy/venezuela/export-import.html>.