The Oil Paradox: Why Norway Succeeded and Venezuela Fell into Crisis

The "Venezuela Effect": The Blueprint of What Not to Do

Every crisis leaves wounds but also creates opportunities. One can choose whether or not to capitalize on that crisis. If one does, the approach can vary: avoiding the repetition of past errors to prevent a recurrence; repeating those mistakes and reliving the crisis later; or leveraging the experience and lessons learned to transform the situation into an opportunity. The goal is to gain a comparative advantage that leaves us far better off than we were before the crisis—and, of course, to ensure a wide margin of safety against falling back into a crisis state. Ultimately, there are three options: bad or worse; the same or better; or even excellent.

The Norwegians saw this clearly and took heed of the warning signs. Upon discovering oil reserves, rather than celebrating, they calmly chose to study the situation. They commissioned academic research and expert analyses to determine how best to capitalize on this fortuitous geological stroke of luck. One of the conclusions identified the so-called "Venezuela Effect"—essentially a blueprint of what *not* to do following an oil discovery. Another conclusion was to leave the non-renewable resource unexploited. The third option—which they ultimately chose—was to extract the oil but channel all resulting revenue into a sovereign wealth fund, without injecting a single dollar into the domestic economy. They would use only a portion of the interest generated by the fund, at a rate that is constitutionally prohibited from being increased.

The Lottery Trap: Why Sudden Wealth Can Lead to Economic Ruin

Let’s put it another way. Imagine winning the lottery—that represents oil. It is an immense amount of wealth acquired without any effort other than the stroke of luck of being born right on top of it. It is more like an inheritance, really; after all, with the lottery, you at least have to buy the ticket using the fruits of your labor before luck smiles upon you. Once we win that lottery, we set about buying a house, a car, a boat, jewelry, and so on. We live just as we did before, but with more things that supposedly make life better. The trouble is, these things don't generate more money; they generate more expenses. We now have a fortune, but we also have higher expenses than before—expenses that eat away at that fortune, especially since we have stopped working. In the long run, it is a losing strategy: the time will come when expenses devour the fortune, forcing us to liquidate our assets just to cover the costs. We might even fall into debt, having grown accustomed to this supposedly better lifestyle and finding ourselves unable to give it up. It is a recipe for crisis.

How Norway Defied the Odds

What did the Norwegians do? They didn't touch the "lottery" money; instead, they invested it to generate returns, kept working as if they hadn't won, and used a portion of the interest earned to ensure they lacked nothing—and even to indulge themselves. The result? Every Norwegian has the equivalent of $280,000 in savings generating interest without lifting a finger. A child born in Norway receives free, top-quality universal education, healthcare, and public services—regardless of social status—plus that $280,000 and the interest it earns for life. It is said that if they were to stop working tomorrow and spend that fund while maintaining their current lifestyle—which is among the best in the world—they could go 300 years without seeing their quality of life decline.

The Forgotten Vision: How the Model Was Actually Born in Venezuela

Well, the good news is this: all of that was invented in Venezuela! Between 1970 and 1976, the Venezuelan Investment Fund was established at the insistence of Juan Pablo Pérez Alfonzo—driven by the certainty that the resource was non-renewable, yet without knowing, at the time, the global scale of the underground reserves.

The difference, then, between Norwegians and Venezuelans was that they launched their initiative in 1990, whereas we abandoned ours before 1980.

Rewriting the Future: A Second Chance for Resource-Rich Nations

The other piece of good news is that—given the sheer scale of our "lottery win"—we have the opportunity to do it better this time around!

We can do so without dollarizing, without ceding sovereignty, without a dictatorship, and without tying ourselves for life to a single client. We have the world's most favorable climate, an exceptional location, the benefit of past experience, and a people—the Venezuelans—who are at the global forefront!