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 Not that we’ve repealed the regulations, just that we promise to look the other way.”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 Not that we’ve repealed the regulations, just that we promise to look the other way.”

Ermmmmmm…no.

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.

Economic CLAPse

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?

 

15 COMMENTS

  1. Anabella/FT, great article, really well-done. Also, the distribution centers for these non-price-controlled articles are few and far-between, at least up to now, and the discrimination mentioned in the CLAP distribution system will feed directly into inhibition of voting one’s anti-Govt.free will in elections/RR/et. al. The Cuban small amount free-food rationing booklet with complete Pueblo political subservience in a “Civico-Militar” framework is on the horizon.

  2. Thanks for correcting and clarifying the regimes new policies which as you rightly state are not what the WSJ article informs . the new policies could be summarized as follows :

    1. price controls still apply to locally produced goods or to direct govt imports whether they are distributed using regular commercial channels or thru the smaller (politically managed) Clap system .

    2. The regular private production-distribution system is now subject to govt controls that directly decide the destination and price of 50% of what they distribute or produce , privileging the supply of the CLAP system .

    3. In the circumstances there is NO new incentive for local private producers to increase their production of scarce goods ….as prices continue being controlled as before .

    4. What is new is that the regime has now begun to informally tolerate (turn a blind eye) to the import of certain food items by private parties for on-selling thru private marketing channels at ‘international’ prices , i.e. at prices that are much higher than regulated prices but lower than bachaquero prices …….!!

    Also to be mentioned is that the controlled prices of certain food items have recently been allowed to rise well above their customary level , and that Vielma Mora , the governor of Táchira State ( a state bordering Colombia) has publicly announced the new policy not in terms of a change in the regulations governing price controls but of HIS taking initiatives to have private parties import what they need and transport them where they can be sold at international prices . The govt authorities have made no announcement on the subject .

    The results of the new policy are already in evidence , certain scarce items are now becoming easier to find than before at very very steep prices most people with a normal income cant afford .

    Which reminds us of that old creole saying ´Si no te agarra el chingo te agarra el sin nariz´, we are caught between a situation where food items cant be found and a situtiation where they can be found (sometimes) but cant be bought !!

  3. Two more consequences of this plan are: i) the government’s friends or military will be importing these products, so another source of revenue for the corruption that keeps the government in place, and ii) the people that can afford to buy the imported goods continue to say that “you see, living in Venezuela isn’t that bad”, thereby contributing to the notion on two Venezuelas, one for the rich and one for the poor.

    Both of these help to sustain the government further over time, the end goal to all of this.

  4. I would add this…

    “a kind of reverse-dumping, where foreign producers now face new incentives to produce at the absolute lowest possible cost (including removing/ignoring costs for normal exports such as destination packaging, safety testing, and any other sort of normal accountability to the consumer/regulators), ….

    Nothing like the newly enhanced “iron-enriched” sugar making the rounds.

    Or the corn flour, “now with double the fiber” because of the added wood pulp.

  5. “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.”

    Completely ignoring articles 18,19, 20 and 25 of UN’s Universal Declaration of Human Rights.

    http://www.un.org/en/universal-declaration-human-rights/

    Where are you UN? The UN was a tireless lion fighting the apartheid in South Africa, but is a sleepy sloth on the Venezuelan issues. Why?

  6. This begs the question whether Venezuelans would welcome the end of price controls if it meant a continuation of the Maduro regime.

  7. One day, a person from another country who I talket to through internet, after explaining him what chavismo used to do in Venezuela, answered me that chavismo is the deconstruction of a saturday morning cartoon villain, when I asked him to explain, he concluded:

    “You know how in those cartoons the villain is always claiming how everybody must kneel before him or else they’ll die? That is what chavismo is doing to your country, they tell the people ‘Kneel before us, or die.'”

  8. Good analysis on this post. The WSJ is clueless..

    One thing missing here, what always helps to explain everything murky, weird, unorthodox in Vzla: Corruption. Price controls were designed to establish countless GUISOS, to steal left and right. Then came the Bachaqueo, shady imports from the border or ports overlooked by the corrupt guardia nazional (cuanto hay pa eso” – bribes…) extortion, special favors… you name it.

    Now they decide to loosen up a bit the ‘precio justo’, but still keep the law, which allows them to still get their bribes, and to extort businesses caught selling goods at market prices. Thus, when the corrupt guards, police, etc find a store selling at real, high prices, they can easily threaten to shut them down, or with heavy multas/penalties, unless, of cour$e, ‘se bajen de la mula”..

    Ask any business owner, abastos or supermarket owner how many times they’ve had t bribe oficial$.. That’s the name of the game.

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