Tremendo rollo

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papelsoft2My take on the toilet paper crisis in a post that proved very difficult to write, over at the Transitions blog. The value added:

Venezuela actually can’t afford to lavish on its citizens like other petrostates, but it tries to anyway. There isn’t enough oil revenue to finance both political subsidies and a functioning economy, and now that there is nobody left to borrow from, the problems are coming home to roost.

In almost cyclical fashion, strengthening local manufacturing could be a solution to this, but then again there are the heavy regulations and lack of adequate investment. So now, without being able to purchase goods from abroad, the few local manufacturers that exist are left to pick up whatever slack they can. But even while performing at full capacity, it isn’t enough to meet demand.

The Venezuelan economic model of excessive meddling is creating a mess. By keeping prices artificially low and imposing price controls on everything, they’re completely undermining the domestic economy to gain short lived political payoffs. Black markets occur when the formal economy isn’t functioning — and it hasn’t been for a while. Just between April and May, prices shot up an astonishing 6.1 percent.

In theory, importing things isn’t necessarily bad, as long as you have the currency to pay for it. The chavista economic model — export oil, import everything else at subsidized prices, regulate every step of the productive process, and forget about local manufacturing — works as long as you have an enormous flow of petrodollars. But even though the price of oil is high, it’s not enough to finance the needs of 28 million Venezuelans.

1 COMMENT

  1. “of 20 million Venezuelans” …. and the rest of the continent, please! Besides, was this not the plan all along? Reduced production and investment dry-up are utterly foreseeable in the circumstances imposed by the regime; they never could have expected anything else. How to approximate daily more to the island nation if thriving local endeavors are allowed to, well, thrive?

    • If it were the Plan all along, then we could at least give them some credit for logic. I’m afraid, however, that it’s more like traditional Lat. Am. Marxist nangara Communist model meddling/incompetence/inefficiency/corruption that is to blame. And, Juan, good comments, but I’m not so sure that always, “In theory, importing things isn’t necessarily bad, as long as you have the currency to pay for it.”

  2. >>> …keeping prices artificially low and imposing price controls on everything,
    they’re completely undermining the domestic economy
    to gain short lived political payoffs <<<
    That's because
    "capitalism is ultimately going to converge with communism
    and a commanding role for the Venezuelan state is inevitable".
    My money quote
    for this maudlin struggling venezuelan regime, flush from
    the papal visit,
    comes from George Carlin – "Eat shit and die motherfuckers!"

      • British writer Malcolm Muggeridge once wryly observed: “Graveyard, or memorial, prose [for the toilet paper debacle] is among the least edifying and least pleasing forms of human composition. There is a prevailing flavor of syrupy insincerity, an affectation of wholehearted truthfulness [witnessing the unwinding of a fourteen year old failed experiment in utopianism ], amounting to the worst kind of deception, which sickens as it surfeits.”
        (the [ … ] are mine)

  3. Importing is bad if it hinders internal development, whether you have the money or not. It can be good or at least neutral otherwise.

    We don’t want to be compradores.

    • I once traveled to findland and all the cars were german , asked why they didnt try and manufacture their own cars , they answered because if we tried to manufacture cars they would be more expensive than those built by germans . We are good at producing wood and paper products , much cheaper than the germans, so we sell these products to germany and buy their cars and everybody wins. At the time our siderurgy tried producing all the full range of siderurgical products so as not to import any, at an uneconomic cost , what it should have done is use economies of scale to produce certain lines of siderurgical products at optimal cost and import the rest .The idea of being absolutely sovereign is foolish , the rational thing is to export what you can produce at an optimal economic result and import what I can buy cheaper elsewhere.

      • Bill, I am not pretending in my dreams that we try to produce cars as a nation. But the principles of John Smith about Portugal and England producing wine and cloths respectively have been badly interpreted and such interpretation is almost as negative as the lefty “import substitution” strategy
        You can only ask so much for bananas…or even wood. This is something countries such as Norway or South Korea, Canada understand…even Chile is trying to do more than export copper or shrimps. The tragedy is that we keep having the comprador mentality. No good.

        • There’s something called industrialization, of course. Countries experience it. Given the right environment and the right stimulation for manufacture to grow.

          But – besides creating the best possible environment to produce and manufacture – actually getting production going, and producing at a profit can be done by fiat? Like currency is produced in economies like Venezuela’s? NO!

          Or by protectionism? Against every economic principle known to humans? NO! At least, a projection should be there that “somewhere in the near future we will be able to produce this and that at a lower cost” for protectionism. All else is a sheer waste of time and money.

          Finns know what they do. They have higher salaries than Germany. They can’t possibly compete with Germans at auto production right now and they won’t waste good money on it, nor make their citizens waste their own good money on it. So they won’t artificially protect some inefficient Finnish company for that. Besides, they have many other high technology / knowledge based businesses, among them Nokia, which does not generally manufacture mobile phones in Finland. Thus they make profit on their highly educated, highly qualified population. And from their abundant natural resources.

          Not that anything here has anything to do with Venezuela’s diseased economy.

          • I have never said we or the Finns should have tried to produce cars. I am saying focusing on some traditional products now because that’s what we do well is counter-productive.

            ” every economic principle known to humans? NO! ”
            Excuse me, but this is fundamentalism, not “economic knowledge”.

            If you check out a little bit of history you will realise every single power that is industrialized now got there first by a flexible decision of open trade with what they found suitable and PROTECTION measures on the other side. The USA did it, Britain did it, Germany did it and Japan did it. China does it as well.

            I don’t believe in conspiracy theories but really, it almost looks as if Latinos going north get a “credo” conciously prepared for them by some evil group of dwarves who want to transform them in the next generation of Latin compradores.
            This credo about full free trade and all is something that no one, no one really has applied in the North for becoming strong. A little less naiveté is needed.
            Please, try to find out what happened at the end of the Tokugawa shogunate period and how the Japanese came to the Meiji period. The disaster they got initially was because they did what Latin Americans do every time they try to get off the equally (but not less or more) silly über-protectionist stance.

            And the state, in the US, in Britain, in Germany always had a say in promoting certain sectors. The issue is how, it is not about whether, but the right measure.

          • “At least, a projection should be there that “somewhere in the near future we will be able to produce this and that at a lower cost” for protectionism. All else is a sheer waste of time and money.”

            Protectionism is in the present makes private citizens’ lose good money they have better uses for, for they could get what they need cheaper. It is a loss of money for businesses that would then not be forced to be more efficient or to find another more profitable area. It can only be thought of sensibly as an investment. Involuntary investment, though, by those directly affected by it.

            Protectionism can only be instituted realistically as (interim) means to an end. Just as investing money is a means to an end. If that end is not to be reached, which is actually getting at mature industries able to compete in international markets, well…

            Those countries also developed or copied technology, tooled up to produce goods cheaply, educated their populace to become industrial workers and engineers, encouraged investment. That’s what mattered.

  4. Anyone here raising a few eyebrows at the mass protests and discontent in Brazil, now in their 4th day? I thought that was exactly the kind of economy Venezuela should emulate?

    • Yoyo, how’s England? Nice weather? We have jolly good weather in Belgium now, finally.
      What do you smoke? And isn’t Dilma one of Maduro’s closest allies? But anyway: you apparently don’t know the amount of protests there are in Venezuela day in and out. Admittedly, in the last few weeks these are the “routine” protests: students and professors in Valencia for the university, taxi drivers protesting about security in Maracay, the same in Barinas, others protesting about blackouts in Falcón (never mind there are blackouts that last for 2 hours or more every second day everywhere outside Caracas and the poshest areas of Valencia and Maracaibo)…

      Come on, don’t you want to move to Venezuela?

      • Whoops, I meant 5th straight day of protests, tonight will be the 6th.

        These protests are because Brazilians are being squeezed economically, many paying 25% of their income on transport. In Venezuela bus prices keep going up, but you’ll never see a mass protest because incomes are also going up.

        The only protests in Venezuela are isolated, very small and usually just a little spectacle for opposition media.

        • I see England’s fine. I love the cookies…miss also the cheddar cheese and the Indian food.

          You obviously haven’t got a clue about Venezuela. If you were a visitor to Venezuela these days you could see with your own eyes how protesters block roads in the Morón road, in Maracay, in Zulia, etc, because of insecurity, because again a couple of the locals were killed in the most senseless acts of crime (the highest murder rate BY FAR in South America, more than 3 times the rate of Brazil, over 2 times that of Colombia, many, many, many more times that of Chile).

          Protests in the last few days may not be what Brazil has right now but if you see the protests we have had in the last 12 months most of the time everywhere in Venezuela: that’s something else, something you do not see in Brazil.

          Again, answer: what do you do in England? Why don’t you go to Venezuela? You can’t even speak Spanish any more.

          • Exactly — small, isolated, protests of 100 people which have nothing to do with the economy. In Brazil, tens of thousands protesting poverty and the misplaced priorities of the government.

          • You really read what you want from what I write, right?
            I am saying the protests are constant, they are a lot, it is not normal to have a country where everywhere there are so many protests, they show the general decay. Decay is the word: the country is falling to pieces, slowly but inexorably.

            We had huge protests for the elections and we have had very large protests last year. You cannot expect us to have the same size of protest synchronized with whatever protest they might have in Brazil. You, typical of a Chavez-Maduro sympathizer, don’t see the big picture

          • yoyo, it is really difficult to muster the effort for a protest when that might mean foregoing one’s position in line for a chance at scarce packages of Harina pan, toilet paper, chicken, or any of the 20% of items that are missing from the shelves.

            Think opportunity cost. Why protest when the government will covertly sic the Tupamaros on you to break up the demonstration with gunfire only so said government can turn around and blame those protesting for the violence? Isn’t that the MO? Blame those who protest every single time for any act of violence, any death, or even imaginary looting and burning of facilities that are miraculously in pristine condition the next day?

          • Actually, one of the main sticking points in Brazil are the massive expenditures for the olympics and world cup. People here, and in this part of the blogosphere, largely thought it was a mistake for Brazil to try to host them at this point, I know I thought so.

            As to Brazil being a better model, thats still the cae, imagine where Brazil would be if the government had ten thousand of dollar of oil revenue per person over the last decade! Not to mention, Brazil has a big public bus system for people to protest fare increases – Venezuelas can only dream!

          • It’s quite interesting that you guys are always predicting the worst about Venezuela, and only have good things to say about Brazil, where people are apparently now willing to risk life and limb for days on end, in their tens of thousands.

            Young people can see that the economy is not being run in their interests. The police are fighting against them. Corruption and inequality is out of control. Everything is super expensive and wages can’t keep up. Crime is nearly as bad as Venezuela, but they have more important things to protest about.

          • yoyo – you hit the nail on the head! Venezuela is always criticized by people sucha s Kepler when he has not lived her for many, many years. He admires Brazil and the Lula model and now he cannot defend it with such massive protests.

            In Venezuela there are small protests all the time. So what? Here everyone can participate whether you are opposition or chvista.

            The university protests – they represent 14% of students up and down the country and will son run out of steam.

            In Brazil there is much inequality and peoplea re aware of it. The GINI Index is sky high and it causes resentment. Here is Venezuela we have the lowest GINI index in the hemisphere so the por do not prot4st and tehy are getting a fair bite of the apple.

          • Yoyo/Arturo you are both right. There are not as many protests in Venezuela (at least not large scale ones) as there are in other countries such as Brazil right now, Turkey, Iran (a few years ago), etc. However, there are not that many protests (if any) in North Korea, Cuba, Vietnam, etc. Unrests tend to grow in counties with rapidly changing economies (for better or worst) and high levels of inequality which Arturo correctly pointed out. If a country’s economy contracts consistently but slowly there are low chances of civil unrest. My point is that using popular protests as a measure of a country’s wellbeing is not adequate. Nor is it the GINI index. I am sure you both know that if a country is evenly poor it would still have a very low GINI index. There are many factors that go into measuring the wellbeing of a country.

            By the way, this is the first time I write on this blog after following it for quite some time. Personally, I like to think that most of those who write on this blog genuinely care about Venezuela (regardless of where they happen to live now). And I enjoy having intelligent discussions about ways to tackle the country’s problems, so I am not afraid to admit I am wrong when I feel I might have been.

            Anyways…

          • Yo-yo’s right; disenchantment in Venezuela hasn’t reached “thousands-on-the-street-come-what-may” levels yet and the authorities are anyway vociferously geared to crush anysuch on the spot. But Jeffry’s still got a point with the ‘For now’ observation though it might have slipped many peoples’ minds that there are diverse foreign troops on local soil who wouldn’t be as unlikely to act aggressively against uprisings as would the local lads. And the policy of “We’ll take everything you have leaving but crumbs and we’ll take those too if you object” seems to be working well among those who think they only ever had crumbs in the first place. Rubbish, of course but a pervasive conviction, nonetheless.

          • Neddie,

            As I see it :After all that has happened over the past 14 years and folks have not come to that level of disenchantment, I would highly doubt that in the foreseeable future we will see it.It is not about how bad things can get, but rather about how much people value certain things, and the price they are willing to pay for that which is valued.

            If chicken and toilet paper are more important than safety and freedom of speech, then so be it, whether the rest of us like it or not.

            The most important thing to see here is : we always have a choice, when we realize that we need to pay a price.

          • What I have never understood is why people accept the rising crime levels without too much protest, but do not risk themselves for a higher purpose such as a change in government.

  5. I have been reading your blog for quite some time but never posted here before. This entry raises some further questions that I find really interesting, and I hope it inspires some serious comments from other followers. The idea that imports are bad (or neutral) is not very helpful, I think. In oil exporting countries it is extremely difficult to maintain domestic industry with competitive productivity. The problem is not so much that Venezuela is importing almost everything, but that instead of taxing imports, the govt is actually subsidizing them through the crazy currency exchange system and creating huge black markets that are not easily taxable. The huge political dilemma that Maduro is facing, and which any president regardless of political side will face, is how to roll back the subsidies and fix the exchange system without becoming hugely unpopular.

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