Tuesday, 24 April 2012

The joys of socialism Venezuelan style

From the New York Times,
By 6:30 a.m., a full hour and a half before the store would open, about two dozen people were already in line. They waited patiently, not for the latest iPhone, but for something far more basic: groceries.
Lining up and waiting for the latest iPhone is one thing, but groceries?
Venezuela is one of the world’s top oil producers at a time of soaring energy prices, yet shortages of staples like milk, meat and toilet paper are a chronic part of life here, often turning grocery shopping into a hit or miss proposition.

Some residents arrange their calendars around the once-a-week deliveries made to government-subsidized stores like this one, lining up before dawn to buy a single frozen chicken before the stock runs out. Or a couple of bags of flour. Or a bottle of cooking oil.

The shortages affect both the poor and the well-off, in surprising ways. A supermarket in the upscale La Castellana neighborhood recently had plenty of chicken and cheese — even quail eggs — but not a single roll of toilet paper. Only a few bags of coffee remained on a bottom shelf.
One would think Venezuela is too rich a country to have sort of thing. So what is the problem?
At the heart of the debate is President Hugo Chávez’s socialist-inspired government, which imposes strict price controls that are intended to make a range of foods and other goods more affordable for the poor. They are often the very products that are the hardest to find.
[...] many economists call it a classic case of a government causing a problem rather than solving it. Prices are set so low, they say, that companies and producers cannot make a profit. So farmers grow less food, manufacturers cut back production and retailers stock less inventory. Moreover, some of the shortages are in industries, like dairy and coffee, where the government has seized private companies and is now running them, saying it is in the national interest.
If you set a price low, one that is below what would be the market clearing equilibrium [supply=demand], the amount supplied is reduced but the amount demanded is increased and the difference is a shortage.
Datanálisis, a polling firm that regularly tracks scarcities, said that powdered milk, a staple here, could not be found in 42 percent of the stores its researchers visited in early March. Liquid milk can be even harder to find.

Other products in short supply last month, according to Datanálisis, included beef, chicken, vegetable oil and sugar. The polling firm also says that the problem is most extreme in the government-subsidized stores that were created to provide affordable food to the poor.
In short ,price controls don't work and can hurt the very people that it is claimed the controls will help.


javage said...


A couple of years ago, my wife and I went on honeymoon to Cuba. One sad, surreal morning we thought it'd be fun to cash out our tourist currency for the domestic one, to buy, at low prices, the things we wanted. We ended up waiting in line two hours for bread, before deciding to turn the currency back into CUCs.

Miguel Sanchez said...

Funny, I just read an article from four years ago that described much the same situation. (Tiny hint that things have gotten worse: powdered milk at least was widely available then, if not the fresh stuff.)