Original drawing by Audrey D’Acosta

I see it every day on my way to work. A supermarket queue, impossibly long, starting before dawn, is cut off by a feudal caravan: a brand-new Toyota 4Runner, no plates, thick black-tinted windows, flanked by three motorbikes, escoltas conspicuously flashing their handguns as they cut through the mass of hungry villagers. It’s no coincidence that the guy in the SUV happens to be hanging around the market, close to the army of bachaqueros standing in line for price-controlled goods to flip. That’s the ringmaster, putting some order in la pea.


Price controls are nothing new, but this administration has pushed them to absolutely crazy extremes.

Welcome to Bachaquero Nation.

For seventeen years, the government has relied on price controls as the cornerstone of its uber-populist brand of “economic” policy.  The two inflection points in our country’s descent into the economic void are easy to spot: the launch of price controls on foreign currency (CADIVI) in 2003, and their extension to everything else via the Ley de Costos y Precios Justos in 2011. The first signaled the installment of financial bachaqueo, the second one, of ‘real economy’ bachaqueo. Whether white- or blue-collar, each sphere is bound by the same rules and a rigid, mob-like hierarchy.

Price controls are nothing new, but this administration has pushed them to absolutely crazy extremes.

The end results of a decade of this speak for themselves: our country is bankrupt, for all intents and purposes. Venezuela is enduring the worst recession in recorded history Some of the most vulnerable people in the country are literally starving, and our government refuses to let anyone come in to try to redeem its criminal negligence. But how did this happen?

The bachaqueo ‘death cycle’

The sanitized version —the way we economists are trained to talk about these things— is that bachaqueros extract excess rent from price differentials. The rent comes from either the private sector (companies forced to sell at an economic loss, depleting its working capital in the process), or the public sector (the government satisfying the excess aggregate demand with imports, depleting International Reserves and amassing External Debt). The bigger the price differentials, and the more widespread the controls, the bigger the bachaquero margins as a share of the economy, and also the bigger is the strain on those who bankroll the margins: you and me.

Our country is being sucked dry by bachaqueros. One day we’ll have the data to come up with the exact figures, but (at least to me) there’s no doubt that bachaqueo has led to a permanent lower level of social welfare by the destruction of potential output and the persistence of external outflows it generates. If you don’t believe me, just ask Carlos Hernandez how it feels living through the bachaquero death cycle.

Evil

All of that is right, but incomplete. Price controls — especially the deliberately sloppy kind of price controls that have been applied here — create evil incentives. And I don’t mean “dysfunctional” or “counterproductive” or any other sanitized euphemism that takes the moral component out of it. I mean evil.

In our upside-down bachaquero economy, nobody wants to produce at prices that are completely disconnected from fundamentals. Instead, everybody tries to engage in the wants to arbitrage: buy low on the regulated market, sell high on the parallel market. It doesn’t matter if it’s dollars, diapers, or detergent we’re talking about: anything that can be flipped for a quick negocio is fair game. Everybody wants to get richer doing things that make society collectively poorer. A system that pushes the everyone to act in ways that make us all poorer isn’t just technically unsound, it’s evil.

We should be clear on this, though: the problem isn’t the people who bachaqueate.  They’re just self-interested individuals like the rest of us: they see an opportunity, weigh up the alternative uses of their time, and seize it.


It’s the system they’ve created that’s evil. 
It’s the thugs who enforce those price controls who are evil.

Scapegoating small fry bachaqueros for doing what they can to scratch out a living in an insane system is to miss the point completely. That the government that pushed them into this corner attacks them, calling miserable individuals that preying on the needs of the pueblo; a beacon of dirty, savage, criminal capitalism; a Judas that deserves to be set on fire, is just the latest sign of its moral disorientation.

It’s the system they’ve created that’s evil. It’s the thugs who enforce those price controls who are evil.

We know the technical upshot: an economy is shrinking by double digits, with regular folk suffering its effect every day, but where the top-tier bachaquero remains king. They don’t seem to care about the fact that their arbitraging is destroying their cash cow in the process.

Play out this dynamic to the bitter end and what you get is what we’re seeing today in Caracas. The days of Cadivismo and cheap, seemingly-endless dollars are gone and will never come back. The productive economy has turned into a queue-based economy, with easily half of the Economically Active Population stranded in a cola for regulated goods at any given day. SITME guiseros (like the high school bully we covered in our #CadiviDiaries special), once the kings of the hill, have had to downgrade their business and have resorted to bachaqueating sacks of Harina Pan and toilet paper: that’s all that’s left for them to flip.

The new rent-seeking hierarchy is led by the luxury goods boutiques that have spawned everywhere in the city as a sort of ‘high-end bachaquerismo’, offering imported goods at international prices. Its only customers? Bachaqueros, you betcha.

It’s amazing that the people who implanted this system have the gall to complain about vulture funds. 

Just as the pie is shrinking fast, the number of people looking for a piece is skyrocketing: the predictable result of decimating whole industries with price controls. A handful of people that oversee the flow of regulated goods are making themselves filthy rich still; you can recognize them by the malandro in Louis Vuitton looks and the plateless Toyota 4Runner SUVs with motorcycle bodyguards running around the city like they own it.

In the end, they do.

26 COMMENTS

      • I’m just wondering if their repeal -holus bolus- is not only politically unfeasible, but problematic from a humanitarian perspective.

        In other words, we can agree this is craziness, we can agree it is not sustainable (although from Mr. Stolk’s review, it appears to be a recurring theme in Venezuela throughout the 20th century), but how do you end the craziness?

        And add to the mix the elimination of currency controls…how then does my friend making minimum wage get by, the day after all that? Before all the farmers return to their fields, the economy becomes productive, etc.?

        (It is an honest question. I’m not, obviously, an economist.)

        We saw in the former communist Europe a massive infusion of investment and capital when all the socialist rigging was eliminated, almost like a Marshall Plan. Currency that otherwise was crap was bought up. How does it work in Venezuela?

          • Daniel,
            I just read the abstract, I still will try to read the main stuff, but still I ask you: can you tell us whether you think we should plan something like in Poland or the Czech Republic or like in Russia?
            You say to be “Russian” Venezuelan.

            I was recently in Russia, among Russian friends, and I know it a bit since Soviet times. They really went through a hell of a trauma and the reason they have this autocrat was to a big extent that thing (and their lack of democratic experience). Controls just vanished but the pain was incredibly massive. People with a certain background and some desire for risk sometimes made a fortune and became oligarchs, the largest majority went through miserable conditions.

            In Venezuela it will be worse, except for the weather.

            One thing is the aid to the poor, but the other is: how do you avoid the country becoming plundered by those pseudo capitalists that got the resources in Russia instead of what you got in Czechoslovakia or Poland? Because after all you do not want to have a feudal state you call capitalist. You want something where everyone has at least a minimal opportunity to be able to get involved in the capital, not just be a pawn.

          • And I am for price removal and currency control removal, but I know it won’t be that easy and the majority of Venezuelans need a lot of education and preparation on this subject.

    • Canucklehead,
      It is a good thing you ask.
      An excellent historical reference is the German Miracle, the “Wirtschaftswunder”.

      The best description I’ve heard —which I have copied here several times— is by a Spanish teacher. Hopefully you understand Spanish so here it goes:

      https://youtu.be/gv4fhdz3SUY?t=9m27s

  1. An excellent article. What you described is simply ‘kafkaesque,’ a country descending into mindless barbarism. Some of the early vocal supporters of this economic nightmare, people like Mark Weisbrot and Eva Golinger, should be held accountable for their cheer-leading. They get to walk away, living in New York city etc, with no consequences.

  2. A resolution has just come out implementing the regimes decision to force any and all agroindustrial and food industries on demand to hand over half of what they produce to selected govt entities , at the price time and conditions they set unilaterally, for on delivery to the CLAP’s. Each comuna sends its requirement to some govt committee and this then apportion the demands among the various producing entities.

    Non compliance with govt orders carries heavy criminal penalties…!!

    This is tantamount to an expropiation of the private business which have until now provided the mass of the countrys basic food demands and to those marketing systems that have formerly distributed them …….the owner of this businesses have become the serfs of the govt to do their bidding …..

  3. Y todo porque el podrido quiso deliberadamente destruir cualquier capacidad de financiamiento a la oposición, darle recompensa con los monopolios a sus secuaces y a la vez convertir a Venezuela en un país lleno de muertos de hambre que se matan entre ellos por un pollo.

    Carajo, ese miserable sí que le tenía arrechera a Venezuela…

  4. Daniel Urdaneta

    “Scapegoating small fry bachaqueros for doing what they can to scratch out a living in an insane system is to miss the point completely.”

    Thank you for this. Most people blame them for the scarcity INSTEAD of blaming the regulated prices. I would add: not only the small fry but the bigger ones too.

    They are reviled, despised and attacked by almost everyone (even some economists!) but that accomplishes nothing since the bachaqueros are the consequence not the cause.

    Trying to combat scarcity and black market prices by attacking the bachaqueros is like trying to stop a flood with sandbags, it works in limited cases and only for so long.

    https://cdn.theatlantic.com/assets/media/img/photo/2011/05/mississippi-floodwaters-roll-south/m31_17176431/main_900.jpg?1425946806

  5. There is this sad human propensity to use ones superior and uncontrolled economic or political power over others to extort the maximum benefit from their needs ..to abuse their haplesness for ones own gain ……., without any regard to the miseries such behaviour causes in their lives.

    There are only two barriers holding back this propensity , one, the moral conscience of the person possesed of such power and secondly its need to compete with others like himself for the business of would be clients

    Relying on peoples moral conscience to self control their predatory instincts where there are no external conditions or checks doesnt always work , an example of this was the way the financial community brought the world to the brink of ruin in the crisis of 2007/2008 thru practices that now all cndem..

    Competition might do it but there are now numberless economic and historical studies of how businessmen by adopting a common marketing strategy or in countless other ways can join together in plundering a captive market, by way of example lets look at whats happening n the airline industry , besides the fact that too often real economic conditions make one party dominate a market so thoroughly that there is no real competition to hold it in check.

    Experience teaches us that greed becomes incontinent when allowed to flourish without anything to control its spread …so regulatory controls of some kind are a necessary part of any balanced well functioning free economy, problem is , how do you avoid such regulatory control from becoming abusive considering given that it is in the regulators political interest to sacrifice the legitimate interests of the business to gain the favour of the public even at the expense of harming the productivity and even the viability of the economic processes which the businessmen perform ….. !!

    So the corruption attendant upon the holding of untramelled power over others can happen at the great businessmens level , at the level of the small time bachaquero and at the regulatory governamental level …., there is no magic bullet to solve this problem …….lifting all regulatory controls is not a magic wand to solve this basic human conundrum…!!

    • It’s not only lifting the regulations and controls that made possible the monopoly, it’s also granting legal and personal security for the producers so they can work and eventually normalize the supply to the market.

    • BB,

      The mortgage crisis of ’08 had its roots in government legislation that both forced banks to make home loans by establishing quotas and by providing government guarantees of such loans. This was not done under any one administration, but by a series of them, starting all the way back to Kennedy. The most irresponsible of them was enacted during the Clinton administration. And I am not just blaming the democrats. Republican legislators also voted for these measures. It is not correct to blame just the banks. There is more than enough blame to share around. However, the roots of the crisis were the government’s original meddling in the market to make for “the greater good”.

      http://www.forbes.com/sites/stevedenning/2011/11/22/5086/#25abaf665b56

      • The bundling of bad loans into toxic financial instruments then insured by even more toxic credit default swaps given grade A status by self-serving ratings agencies supporting financial institutions knowingly selling shit to their own clients and telling them it was gold creating a monstrous feedback loop that fed a housing bubble and brought down the banking system was very arguably the doing of an under-regulated market, however…

        • All of which allowed everyone in the “system” to continue kicking the can down the road, even when they knew there was a problem. However, the government was complicit with all of the shenanigans, because the politicians were well-aware that it was they who created the original incentives for the banks to make bad loans. Pure “crony capitalism” with the politicians in it up to their necks.

  6. Bacaqueros and “speculation” are simly symptoms of the problem. What the current government advises to resolve the problem is like an oncologist using visine to clear the eyes of a patient with liver cancer.

  7. Lets assumme that peoples economic behaviour is the result of motives , for a business the motive is venal , the maximization of profits , for the government iits political , create controls that sattisfy the interests of the most influential or important of your constituents , in either case where an assymmetry of power allows one to exercise abusive power over another to abuse its dominant position to its own benefit it tends to do so , save where limits and safeguards are placed on its behaviour …..to protect the public interest .

    One such check is the moral cosncience of the businessmen and the sense of responsability of govt regulators , we know that its not a always a very effective means of self restraint , the other is having to compete with others , again we know that such spontaneous market restraints dont always work because either they dont really exists or are too easy to circunvent …..!! the third is the subjection of govt to the control of adversarial political interests that rein in their abuses , and yet too often all pols are driven by the same motives and dare not cut short a popular control measure even if its irresponsibly applied …..!! So what is the solution to this conudrum …….education …democracy …..a system of check and balances………, donesnt appear that any of these solutions is really reliable ……!!

  8. The problem is that Venezuelans have been sheltered from real world prices by the socialist system so they can only afford to buy subsidized goods sold below its cost of production. The bachaquero’s prices may appear extortionate but they are selling at close to real world prices. The distortion is caused by the bogus exchange rate fixed by the govt to which salaries are pegged. Black market prices are based on the real exchange rate which causes a great disjoint between price and affordability. At the real rate of Bs 1000 to US$1 Venezuelan salaries are a pittance.

    The difference between international prices and subsidized prices must be paid for with export earnings. It was not sustainable even when oil price was in triple digits. Now the pigeons have come home to roost so to speak. The govt cannot afford to keep subsidizing the whole economy. Something has to break.

    To recap it’s not that black market prices are high it’s Venezuelan salaries are too low.

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