Venezuela's socialist dreams create nightmare in the market

[w¡n9Nµ7 §£@¥€r 123]

Friday, March 30, 2007

BY JOSÉ OROZCO

For the Star-Ledger

CARACAS, Venezuela -- Francisco Cabrera has stopped making money.

He used to take home $930 a month from his butcher shop at the Guacaipuro Market. But that ended when the Venezuelan government cracked down on butchers and grocers who were selling products above price controls.

Now, Cabrera wonders how long he can stay open.

"When we do the math," explains Cabrera, who has three children, "we come up short."

Welcome to the other Venezuela.

This is the one you probably haven't heard much about -- the one that doesn't have anything to do with President Hugo Chávez calling President Bush the devil.

With one hand, Chávez has channeled record oil revenue into his social missions, pet projects that include free education and health care, and subsidized food. That political masterstroke has made him wildly popular with much of the poor and working classes, his base of support.

But with the other hand, Chávez, in the view of his critics, is steering the country down the well-trodden path of authoritarian rule and economic collapse. Inflation is run ning rampant at 20 percent, and there's a growing black market for goods that suppliers refuse to sell legally in stores at the government's prices.

Already in control of most institutions, Chávez has been granted legislative powers for 18 months and is pushing forth on constitutional reform, which together promise to further tighten his grip on the state as he implements his so-called "socialism of the 21st century."

Along the way, Chávez has made it clear the Venezuelan state will dominate the economy, suggesting to many the price controls are part of a larger plan to take over the strategic food industry. Although controls initially protect poor consumers from inflation, regulated prices sooner or later tend to re sult in food shortages when suppliers stop selling at government prices. Then the poor become further dependent on subsidized food or face higher prices on the black market.

"We have an overheating of the economy," explains Domingo Fontiveros, an economist in Caracas. "It needs to cool down by cutting public spending significantly."

Venezuelan public spending has doubled in the past three years as Chávez has di rected historic oil profits to the missions for the poor. At the same time, the resulting inflation and his controls have produced shortages in beef, chicken, milk, sugar and other staples.

Aggravating matters, the state agency that doles out dollars to importers as part of the country's exchange control has suffered from inefficiency. That has made it hard to cover internal shortages with imports. Venezuela imports two-thirds of its food.

Chávez imposed price controls on basic foods more than three years ago, but he has failed to revise them for inflation, now the highest in Latin America. In fact, he is threatening to jail suppliers who refuse to sell goods at official prices and those who hoard supplies.

Amid complaints about the food shortages, the government continues to insist it is capitalist greed, and not economic laws, that lie behind the shortages.

"Used to 200 percent profit margins, it's logical that they say, 'This doesn't work out,'" says Carlos Escarrá, a leading deputy of Chávez's. "If they'd lost money, as they claim, they'd have closed."

Pretend for a moment you are poor and live in Venezuela.

Chances are you will buy your groceries at Mercal, whose 14,000 locations make it the country's largest chain of food stores. It sells subsidized groceries to mostly poor Venezuelans. Mercal is run by the government.

At regulated prices, a dozen eggs costs the equivalent of $1.55. A kilogram of powdered milk, the kind most Venezuelans buy, $4.35. A whole chicken will cost you $1.06 per pound. The prices may not sound bad, but a poor family here makes the equivalent of $6,140 per year and spends about half of that on groceries.

"It's a terrible situation for poor consumers," Fontiveros says. "The search for groceries ends up dominating a poor person's days, cutting into their recreation time, even keeping them out late when they are at greater risk from crime."

As the problems mount, ten sions are growing at Mercal stores, where shortages have resulted in long lines. Quality also has suffered.

For example, some butchers no longer can afford the labor costs to remove bones and fat from cattle, so they simply leave them in. And a cheese vendor said he'd stopped selling a regulated cheese because the milk needed to make it was already double the government price. Cheaper versions were available, but were of a "terrifying" quality.

Worse than the inconvenience and quality problems, however, economists worry the controls and zooming inflation ultimately will drive small butchers and grocers like Cabrera out of business. That, the economists fear, will force poor consumers to pay even more for food on the black market.

Outside a large Mercal on Caracas' poor west side, people in line to shop last week complained of a shortage.

"They never have chicken here," laborer José Rodriguez said.

Mercal customers in another poor area gripe about the shortages but praise the subsidies.

"When this first opened, it was great," says Freddy Rodriguez, 53, a refrigeration technician. "Now, it's no good. There was no pasta and no beef. Lately, something's al ways missing. But you save a lot of money."

Poor consumers support the controls for obvious reasons, and even many grocers and butchers back them, too. But they object to the way they are implemented.

"We don't know how they come up with the numbers for the price controls," says Rafael Albano, a butcher shop owner and spokesman for the Venezuelan Independent Butchers group. "They don't make sense."

Far from leading a destabilization plan against Chávez, Albano applauds the crackdown on price speculators, but he argues the controls have gone too far. He said his shop lost $1,400 in two weeks of hewing to the price controls.

Meanwhile, butchers try to meet with state regulators to argue their case, hoping for a reprieve be fore the crisis forces a mass shutdown.

"We have never been attacked like this," says Ramon Duran, co- owner of a butcher shop at the sprawling Quinta Crespo Market in downtown Caracas. "Who will want to invest in businesses like these? You can't when the government threatens to close you if you don't open your doors."

José Orozco is a freelance journalist working in Venezuela. He may be reached at joseorozco78@hotmail.com.

http://www.nj.com/printer/printer.ssf?/bas....xml&coll=1

[almaty 19]

chavez is a chopf##k...

[Mr. Big Dog 10,747]

Worse than the inconvenience and quality problems, however, economists worry the controls and zooming inflation ultimately will drive small butchers and grocers like Cabrera out of business.

"Socialist" regimes are not built on small businesses. They are built on government run monopolies. There is no competition and/or market regulation. All is steered centrally by the government. The small businesses will disappear as Venezuela transitions from a market to a regulated economy. The policies are designed to do that.

[mawilson 2,133]

Welcome to the U.S.S.R.

[w¡n9Nµ7 §£@¥€r 123]

[GaryC 7]

And here is a great illustration of the dangers of messing with the free market. When you try to engineer the economy you will eventually end up with no economy.

Worse than the inconvenience and quality problems, however, economists worry the controls and zooming inflation ultimately will drive small butchers and grocers like Cabrera out of business.

"Socialist" regimes are not built on small businesses. They are built on government run monopolies. There is no competition and/or market regulation. All is steered centrally by the government. The small businesses will disappear as Venezuela transitions from a market to a regulated economy. The policies are designed to do that.

It worked in the USSR really well didn't it?

[w¡n9Nµ7 §£@¥€r 123]

And here is a great illustration of the dangers of messing with the free market. When you try to engineer the economy you will eventually end up with no economy.

Worse than the inconvenience and quality problems, however, economists worry the controls and zooming inflation ultimately will drive small butchers and grocers like Cabrera out of business.

"Socialist" regimes are not built on small businesses. They are built on government run monopolies. There is no competition and/or market regulation. All is steered centrally by the government. The small businesses will disappear as Venezuela transitions from a market to a regulated economy. The policies are designed to do that.

It worked in the USSR really well didn't it?

Atleast everyone in the USSR had healthcare

[GaryC 7]

Atleast everyone in the USSR had healthcare

Yeah, good point. I wonder how many people would rather live in the USSR or Cuba just to have free health care? Seems a fair trade to me!

[Mr. Big Dog 10,747]

And here is a great illustration of the dangers of messing with the free market. When you try to engineer the economy you will eventually end up with no economy.

Worse than the inconvenience and quality problems, however, economists worry the controls and zooming inflation ultimately will drive small butchers and grocers like Cabrera out of business.

"Socialist" regimes are not built on small businesses. They are built on government run monopolies. There is no competition and/or market regulation. All is steered centrally by the government. The small businesses will disappear as Venezuela transitions from a market to a regulated economy. The policies are designed to do that.

It worked in the USSR really well didn't it?

No it did not. I did not say it did nor did I advocate the installation of a socialist regime as econmically beneficial. It isn't. I should know as I grew up in one of those. All I am saying is that the point that small business will suffer is a silly one to make. That's what socialism is all about. Why act surprised or paint it on the wall as a bad possibility? It's a given. And yes, the lack of competition will lead to economic demise.

China, on the other hand, seems to disprove (at least temporarily) what I just said.

[GaryC 7]

And here is a great illustration of the dangers of messing with the free market. When you try to engineer the economy you will eventually end up with no economy.

Worse than the inconvenience and quality problems, however, economists worry the controls and zooming inflation ultimately will drive small butchers and grocers like Cabrera out of business.

"Socialist" regimes are not built on small businesses. They are built on government run monopolies. There is no competition and/or market regulation. All is steered centrally by the government. The small businesses will disappear as Venezuela transitions from a market to a regulated economy. The policies are designed to do that.

It worked in the USSR really well didn't it?

No it did not. I did not say it did nor did I advocate the installation of a socialist regime as econmically beneficial. It isn't. I should know as I grew up in one of those. All I am saying is that the point that small business will suffer is a silly one to make. That's what socialism is all about. Why act surprised or paint it on the wall as a bad possibility? It's a given. And yes, the lack of competition will lead to economic demise.

China, on the other hand, seems to disprove (at least temporarily) what I just said.

I was attempting to be ironic. Most people see that the USSR was a failed government.

China is letting private business's open up now. When I was there I saw small stores everywhere. They are seeing that total control of business's was a mistake. It's one of the reasons they are a up and coming economy.

[Mr. Big Dog 10,747]

And here is a great illustration of the dangers of messing with the free market. When you try to engineer the economy you will eventually end up with no economy.

Worse than the inconvenience and quality problems, however, economists worry the controls and zooming inflation ultimately will drive small butchers and grocers like Cabrera out of business.

"Socialist" regimes are not built on small businesses. They are built on government run monopolies. There is no competition and/or market regulation. All is steered centrally by the government. The small businesses will disappear as Venezuela transitions from a market to a regulated economy. The policies are designed to do that.

It worked in the USSR really well didn't it?

No it did not. I did not say it did nor did I advocate the installation of a socialist regime as econmically beneficial. It isn't. I should know as I grew up in one of those. All I am saying is that the point that small business will suffer is a silly one to make. That's what socialism is all about. Why act surprised or paint it on the wall as a bad possibility? It's a given. And yes, the lack of competition will lead to economic demise.

China, on the other hand, seems to disprove (at least temporarily) what I just said.

I was attempting to be ironic. Most people see that the USSR was a failed government.

China is letting private business's open up now. When I was there I saw small stores everywhere. They are seeing that total control of business's was a mistake. It's one of the reasons they are a up and coming economy.

The trend in China may well reverse once the economic power of private enterprise threatens the political power of the politbureau. Or they let the economic power grow too strong and won't be able to stop the polibureau's demise in the end. A thriving economy and a socialist government cannot coexist for long. See what happens in Russia...

[GaryC 7]

And here is a great illustration of the dangers of messing with the free market. When you try to engineer the economy you will eventually end up with no economy.

Worse than the inconvenience and quality problems, however, economists worry the controls and zooming inflation ultimately will drive small butchers and grocers like Cabrera out of business.

"Socialist" regimes are not built on small businesses. They are built on government run monopolies. There is no competition and/or market regulation. All is steered centrally by the government. The small businesses will disappear as Venezuela transitions from a market to a regulated economy. The policies are designed to do that.

It worked in the USSR really well didn't it?

No it did not. I did not say it did nor did I advocate the installation of a socialist regime as econmically beneficial. It isn't. I should know as I grew up in one of those. All I am saying is that the point that small business will suffer is a silly one to make. That's what socialism is all about. Why act surprised or paint it on the wall as a bad possibility? It's a given. And yes, the lack of competition will lead to economic demise.

China, on the other hand, seems to disprove (at least temporarily) what I just said.

I was attempting to be ironic. Most people see that the USSR was a failed government.

China is letting private business's open up now. When I was there I saw small stores everywhere. They are seeing that total control of business's was a mistake. It's one of the reasons they are a up and coming economy.

The trend in China may well reverse once the economic power of private enterprise threatens the political power of the politbureau. Or they let the economic power grow too strong and won't be able to stop the polibureau's demise in the end. A thriving economy and a socialist government cannot coexist for long. See what happens in Russia...

Yep! That is correct!