Original drawing by Leonardo González.
In a widely shared Wall Street Journal article yesterday, Anatoly Kurmanaev heralds a major shift in government policy: “President Nicolás Maduro’s government,” he tells us, “has begun dismantling price controls, a major policy shift that aims to ease widespread unrest by letting shops sell food at market prices…”
Anatoly has done some great reporting in the past, but here he’s far off the mark: what the government has done is very far from “dismantling price controls.”
In Venezuela, price controls are the law: to dismantle them, you’d have to repeal the Law on Fair Prices. The government is doing no such thing. Instead, it is letting it be known that it won’t prosecute certain shops that break the law by selling some products at prices higher than the controlled level. Some seguridad jurídica, huh?
The major policy initiative consists, in effect, of telling businesses “it’s ok, go ahead, just sell these products without any of the regulatory paperwork. Not that we’ve repealed the regulations, just that we promise to look the other way.”
Of course, the government also has a long and well-documented history of expropriating businesses that break socialist laws, which explains why big supermarket chains are thinking twice about selling products at international prices.
The major policy initiative consists, in other words, of telling businesses “it’s ok, go ahead, just sell these products without any of the regulatory paperwork. Not that we’ve repealed the regulations, just that we promise to look the other way.”
But the problems run deeper than that.
From an economist’s point of view, much of the reason to dismantle price controls is to give producers an incentive to produce. This doesn’t do that, because Venezuelan producers are shut out from this market.
It’s been very visible to consumers that the products now coming in at international prices are imported from Brazil or Colombia. (In fact, saying “international prices” is mislaeding: these goods are being sold substantially above international prices — there’s still an illegality premium, because it’s all still illegal.)
The products now filling Caracas shelves don’t have any sanitary labels from the health ministry. Brazilian packaging isn’t even translated to Spanish. These products are moving around the country without the transport guías (permits) the government normally insists on. Imports are being introduced into the domestic supply chain a los coñazos: not through a new regulatory system, but bypassing all regulation.
Liberalization is supposed to be about more than just filling up some supermarket shelves. It’s supposed to be about stimulating domestic production as well. But that can’t happen if you specifically bar domestic producers from competing in liberalized markets, which is exactly what the government is now doing.
The resulting policy is bizarre: a kind of reverse-dumping that actively discriminate against Venezuelan producers. Normally, when other countries do this to you, you get mad and sue them at the WTO. In Venezuela, we do it to ourselves.
At the same time as the Government was giving away the high-margin piece of the domestic market to foreign producers, it was making sure domestic producers get saddled with more and more of the costs of serving the loss-generating price-controlled piece.
Just last week, it made official Resolution Nº 10 which says “public and private companies engaged in the production of inputs or goods from the agri-food, personal hygiene and household cleaning products sectors, must to sell up to 50% of their production to [certain] Public Entities”, which will later be — supposedly — distributed vía CLAPs, the infamous party-controlled door-to-door food delivery committees.
And you can be sure domestic producers won’t be paid international prices. For that privilege, you have to be foreign.
To tie it all together, they’ve now announced that people who criticize the government will be cut out of the CLAPs loop for three months.
Guess who will determine the price of goods distributed vía CLAPs? Yup, the Central Government. The Law of Fair Prices is still in force, remember?
To tie it all together, they’ve now announced that people who criticize the government will be cut out of the CLAPs loop for three months. And if criticizing the government in las colas become a regular event, the whole Consejo Comunal may then be struck off.
Another possible penalty: those who talk publicly about their discontent with the government will be removed from the database and will be force them to buy the products in jornadas a cielo abierto.
Not that this is new: 45% of respondents of the Encuesta de Condiciones de Vida -Encovi- 2015 said they had been excluded from the benefit of the Misiones Sociales, 1 in 4 for political reasons. The crisis has done nothing more than deepen this system of discrimination.
When you put it all together you end up with a two-tiered distribution system.
One tier is designed for a tiny minority of high-income consumers able to pay international prices for their staples, supplied by Brazilian and Colombian companies through a distribution chain that is illegal but tolerated, with none of their spending feeding into new domestic production or employment.
The other tier — the one for normal people — will be supplied by loss-making Venezuelan producers in the public or private sector, generating huge losses which ensure they’ll be chronically short of products, and therefore forced to ration. The rationing mechanism will be explicitly by political preference, with dissidents apparently expected to simply stop eating.
The two systems will be entirely apart. They will enjoy complete apartness.
Wait, what’s the word for apartness in Afrikaans again?