January 10, 2010

Venezuela Slipping Into Socialist/Statist Darkness, Figuratively and Literally

HugoChavez0110Four recent stories out of Venezuela each give readers brief glimpses at how Hugo Chavez’s brand of authoritarian socialism is critically wounding what could be a resource-rich, financially prosperous country:

  1. January 9, Associated Press — “Venezuela weakens currency for 1st time in 5 years.”
  2. January 10, Bloomberg — “Chavez Says He’ll Seize Businesses That Raise Prices.”
  3. December 22, AFP — “Chavez announces new discount ‘socialist’ stores.”
  4. January 9, AP — “Venezuela faces risk of devastating power collapse.”

Collectively, however, they depict a country in the early stages of a headlong free-fall into Cuban-style financial ruin. No U.S. establishment media enterprise appears interested in making the accelerating decays in financial well-being and personal freedom in that country understandable to the average person.

AP’s headline at the first item noted seems designed to avoid attention. This isn’t a mere “weakening” of the currency; instead, it’s a bizarre bi-level devaluation of up to 50%:

President Hugo Chavez’ decision to devalue Venezuela’s currency for the first time in nearly five years aims to stretch his government’s oil earnings further and counter a recession by increasing spending.

The devaluation of the bolivar lessens a wide gap with the black-market exchange rate for dollars and will unavoidably push inflation – already the highest in Latin America at 25 percent – to even higher levels.

Opposition leaders on Saturday called the devaluation a blow to Venezuelans that will make them pay through inflation while letting the government instantly convert its oil earnings into more cash domestically to boost spending ahead of congressional elections.

…. With the devaluation, Chavez also set a new two-tiered exchange rate in an attempt to hold down prices of priority imports like food to counter inflation.

The currency’s official exchange rate had been held steady by the government at 2.15 bolivars to the dollar since the last devaluation in March 2005. Chavez said the bolivar will now have two government-set rates: 2.6 to the dollar for transactions deemed priorities by the government, and 4.3 to the dollar for other transactions.

The wire service’s Jorge Rueda never specified the percentages of devaluation (about 20% and exactly 50%, respectively, for “priority” and “other” transactions).

Chavez’s threats identified in the Bloomberg item, to the extent they are successful, are destined to keep businesses from fully replenishing their stocks of goods for sale:

Venezuelan President Hugo Chavez said that businesses have no reason to raise prices following the devaluation of the bolivar and that the government will seize any entity that boosts its prices.

Chavez said he’ll create an anti-speculation committee to monitor prices after private businesses said that prices would double and consumers rushed to buy household appliances and televisions. The government is the only authority able to dictate price increases, he said.

“The bourgeois are already talking about how all prices are going to double and they’re closing their businesses to raise prices,” Chavez said in comments on state television during his weekly “Alo Presidente” program. “People, don’t let them rob you, denounce it, and I’m capable of taking over that business.”

If jawboning and intimidation are fully effective, most retail businesses will only have half-empty shelves and rising overhead costs — circumstances likely to put many of them out of business.

Now there’s a coincidence (/sarcasm). The December 22 AFP item reveals that the Chavez is going with a so-called “public option,” if you will, for everyday goods and services:

President Hugo Chavez on Tuesday announced a new chain of government-run, cut-rate retail stores that will sell everything from food to cars to clothing from places such as China, Argentina and Bolivia.

“We’re creating Comerso, meaning Socialist Corporation of Markets,” Chavez said at the opening of a “socialist” fast-food location for traditional Venezuelan arepas (cornbread).

“They’ll see what’s good. We’ll show them what a real market is all about, not those speculative, money-grubbing markets, but a market for the people,” said Chavez in his drive to change Venezuela from a market-based economy to a socialist one.

…. We’re going to defeat speculation. Private individuals in sales can still sell, but they’ll have to compete with us and with a people who is now fully aware,” Chavez said.

…. The socialist retail outlets will serve the public alongside the Mercal supermarket chain, which sells subsidized food in Venezuela’s working-class neighborhoods.

So it would appear that Chavez is setting up his state-run enterprises just in time to fill in the devaluation-caused breach. How convenient.

One also expects that Comerso will have all kinds of built-in advantages over Mercal and other competitors, like exemptions from taxes, more lax regulation, the ability to get government subsidies for losses incurred. These and other advantages, by the way, are also reasons why the so-called “public option” for health insurance included in many versions of statist health care being considered by the U.S. Congress is nothing but a ruse to eventually and inevitably put private insurers out of business.

Meanwhile, the AP’s Fabiola Sanchez, in describing the “devastating power collapse” in the final listed item above, wants to create the impression that it’s happening because of the whims of Mother Nature. But the reporter at least gives voice to the more likely culprits in later paragraphs:

Chavez has blamed the electricity predicament on the El Nino weather phenomenon in the Pacific Ocean, along with global warming. But critics blame the government, saying investments in infrastructure haven’t kept up in spite of Venezuela’s bountiful oil earnings.

(Economics professor Victor) Poleo said investments have been hobbled by a lack of planning, waste and corruption, and that based on his research only about 25 percent to 30 percent of the funds approved for infrastructure upgrades have reached their intended uses.

The government’s electricity minister, Angel Rodriguez, was not available to respond to the accusations.

Earlier paragraphs from Sanchez indicate that the government is already imposing power rationing, including limiting the hours of operation of …. shopping malls. Imagine that. Will Comerso have to abide by such restrictions? Will it also get the “priority” purchasing rate while its competitors are stuck with the “other” rate?

Sanchez also identifies a clear overdependence on one power source, namely the Guri hydroelectric dam, which supplies 73% of the country’s electricity. Fine, but Chavez has had every bit of 10 years to do something about that, and is sitting on a veritable ocean of fossil-fuel resources that could have been called into play if the related electricity-generating capacity had been built.

Put these four stories together and you see a country that is not at all far from being in a situation of forced misery with the state as sole provider of many if not most of the basic necessities of life. One wonders if it isn’t already too late to keep Venezuela from becoming Cuba writ large. If America wakes up one morning to find that this is indeed the case, an establishment media elite that has been all too sympathetic to Chavez from the get-go and has failed to paint an accurate picture of what has been happening to economic and human rights in that country for years will deserve a large share for that “surprise.”

Cross-posted at NewsBusters.org.


Correction: Mercal is a state-owned enterprise. Comerso’s private-sector competitors are not named in this post. The strikethrough of “Mercal and” above remedies that error.



  1. Wow. And this whole sordid tale exposes the ridiculously simplistic view of the world Chavez has. Higher prices are always bad, anyone who steps out of line of what he thinks is a member of the Marxist’s ambiguous bogeyman “the bourgeoisie,” Chavez is never wrong, and he even throws in that blanket excuse for everything that’s bad known as global warming. And like many Marxists, he overlooks the fact that the producers of products and services have rights too and also needs that deserve to be met just like anybody else. Doesn’t he think shopkeepers and business owners both large and small have families and living expenses to deal with to and that undercutting how much they can charge hurts their well-being? Not to mention their employees. But I guess since they are the “bourgeoisie” and not people they don’t count. He reminds me of so many on the left, deify and treat themselves as saints and demonize anyone who even slightly veers from the leftist viewpoint. Just how far really is the “mainstream” left from the Castros and Chavez’s of the world anymore?

    Comment by zf — January 11, 2010 @ 1:25 am

  2. Keep trying to instill or revive socialism even though it has never worked anywhere no how. No matter who they put in charge or whatever the legislation. It is always a failure, always. They feel if the right person or right circumstances or the right amount of money will make this failed ideology work and it never does. Unfortunately the misery this ideology causes can be long lasting and take forever to undo if it even can be undone.

    Comment by Fashion — January 11, 2010 @ 2:32 am

  3. And can anyone explain to me what is this “speculation” he keeps rambling about? If he means price fluctuation, that’s a good thing. Prices fluctuate in response to changing trends and realities. It’s called flexibility. If he thinks you can have a “real market” with inflexible and rigid pricing and still meet changing needs and situations he’s a bigger lunatic than I thought. A real market is driving by the freedom and individual choices of both the buyers and sellers. But again, this is a guy who brilliantly devalues his own currency and puts his foot down on those who raise prices to account for the inflation and then expects prosperity to follow.

    Comment by zf — January 11, 2010 @ 10:23 am

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