Attention Puerto Rican politicians, Capitalism is the answer to poverty, not Socialism

To all politicians, remember, Capitalism helps people out of poverty, while Socialism pushes people into poverty.  Why?  It’s simple.  Socialism destroys the incentive to work hard, because you are not allowed to keep the fruits of your labor.  Socialism punishes workers while rewarding the lazy.  Capitalism rewards hard work.  You get more of the behavior that you reward, and you get less of the behavior that you punish.  Look at Cuba, North Korea, and Venezuela to see what happens under Socialism.  Shortages, famine, long lines, lower quality of life, shorter life spans.

Following the Mugabe model

Spot the difference

Venezuela today looks like Zimbabwe 15 years ago

VISITING a supermarket in Venezuela is like entering Monty Python’s cheese-shop sketch. “Do you have any milk?” The shop assistant shakes her head. Sugar? No. Coffee? No. Soap? No. Cornflour? No. Cooking oil? No. Do you in fact have any of the products that the government deems so essential that it fixes their prices at less than what it costs to make them? No.

This is hard cheese for the masses queuing outside in the hope that a truck carrying something, anything, will arrive. Yesenia, a middle-aged lady from a village near Caracas, got up at midnight, rode a bus to the capital, started queuing at 3am and is still there at 10am. “It’s bad, standing here in the sun. I’ve had no breakfast, and no water.” Why does she think there are such severe shortages? “Bad administration.”

That is putting it mildly. The Venezuelan government spends like Father Christmas after too much eggnog, subsidising everything from rural homes to rice. It cannot pay its bills, especially since the oil price collapsed, so it prints money.

Cash machines in Caracas spit out crisp new bills with consecutive serial numbers. The last time your correspondent saw such a thing was in Zimbabwe in the early 2000s. The IMF predicts that inflation will be 720% in Venezuela this year, a figure Zimbabwe hit in 2006. By 2008 Zimbabwe was racked by hyperinflation so crippling that beggars who were offered billion-Zimbabwe-dollar bills would frown and reject them (see chart).

Might Venezuela go the way of Zimbabwe? They are culturally very different, but the political parallels are ominous. Both countries have suffered under charismatic revolutionary leaders. Robert Mugabe has ruled Zimbabwe since 1980. Hugo Chávez ran Venezuela from 1998 until his death in 2013. His handpicked successor, Nicolás Maduro, continues his policies, though with none of Chávez’s—or Mr Mugabe’s—political adroitness.

Mr Mugabe seized big commercial farms without compensation, wrecking Zimbabwe’s largest industry. Chávez expropriated businesses on a whim, sometimes on live television. He sacked 20,000 workers from the state oil firm, PDVSA, and replaced them with 100,000 often incompetent loyalists, some of whom were set to work stitching revolutionary T-shirts.

Mr Mugabe lost a referendum in 2000 but rigged the subsequent election to keep the (more popular) opposition out of power. The chavistas lost a parliamentary election in December but have used their control of the presidency and supreme court to neuter the (more popular) opposition.

Mr Mugabe recruited a ragtag militia of “war veterans” to intimidate his opponents. Chávez recruited gangs from the slums, known as colectivos, to terrorise his. On March 5th gangsters on motorbikes rode around the (opposition-controlled) National Assembly and sprayed pro-government slogans such as “Chávez vive” on its walls. Police stood and watched.

Yet the key similarity between the two regimes is not their thuggishness but their economic ineptitude. Both believe that market forces can be bossed around like soldiers on parade. In both cases, the results are similar: shortages, inflation and tumbling living standards.

Mr Mugabe, who like the chavistas professes great concern for the poor, fixed the prices of several staple goods in the early 2000s to make them “affordable”. They promptly vanished from the shelves. The subsidies that are supposed to make price controls work have often been stolen in both countries. Suppliers, rather than giving goods away at the official price, prefer to sell them on the black market.

Retail riot police

Ana, a young hawker in Caracas, explains how it works. She holds a bag of washing powder that is supposed to be sold for 32 bolívares. She bought it for 400 and will sell it for 600. Her business is illegal, but she conducts it openly in a crowded square. Nearby, hawkers from the countryside haggle over illicit nappies. The bus ride to Caracas was 13 hours; the hawkers say they come every two weeks.

Outside a state-owned supermarket, a dozen national guardsmen equipped with body armour, truncheons and tear-gas are stopping a pregnant woman from coming in. It’s not one of her designated days of the week for shopping, they explain. (You get two.) Shoppers must show their identity cards to enter the store and have their fingerprints scanned before buying their ration of price-controlled goods.

Yet such measures are no match for the law of supply and demand. Suppose you are driving a tanker of subsidised petrol. You can sell the cargo legally in Venezuela for $100, or drive across the border to Colombia and sell it for $20,000. The pitifully paid border police will be easy to square.

Wily entrepreneurs find ways around price controls without violating the letter of the law. When bread was price-controlled in Zimbabwe, bakers added dried fruit and called it “raisin bread”, which was not price-controlled. Venezuelan firms have added garlic to rice, called it “garlic rice” and sold it at unregulated prices.

Ridiculous laws breed bitter comedy. A Venezuelan company boss recalls a time when he could not buy toilet paper. He rang up a friend who ran a paper company. The friend said he couldn’t sell him a single pack, but he could sell him a small truckload, company to company. It cost less than the single pack he had initially asked for.

Mr Mugabe has long blamed his country’s economic woes on speculators, traitors, imperialists and homosexuals. Mr Maduro, to his credit, doesn’t blame gay people. But he insists that local capitalists and their American allies are waging an “economic war” on Venezuela. This is absurd: in both economies the assaults have come from their own governments.

By the most overvalued official exchange rate, ten bolívares are worth one American dollar. On the black market, the same dollar fetches 1,150 bolívares. Zimbabwe abandoned its worthless currency not long after monthly inflation hit 80 billion per cent in November 2008. Zimbabweans now use American dollars and other foreign currencies. Real incomes in Zimbabwe fell by two-thirds between 1980, when Mr Mugabe took over, and 2008. They have partially recovered, thanks to dollarisation and the scrapping of some of the old man’s daftest policies.

For Venezuela, the lesson is plain. If it fails to pick a better model than Mugabenomics, things will only get worse. The Venezuelan opposition are keen to change course. Mr Maduro’s cluelessness gives them a chance. He says that he is tackling shortages by raising his own chickens—and so should everyone else.


guest-nojnill Mar 31st, 20:46

This article really nailed it in capturing the absurdity of these governments actions. The root of the problem is the ineptitude of the political leaders that are in power in these countries. Both Mugabe and Chavez were backed by a band of thugs who called themselves ‘revolutionaries’ and ‘socialists’. It is all a sham. It is not socialism at all in any way (at least it has not been in the past years). It tends to slide more into Communism – if it is necessary to place this political disaster in a category.

It was always the thirst for power and money that drew these current leaders to succeed. And incredibly – we let them. As a Venezuelan, I am ashamed how having ever believed that we were not in a good situation before Chavez was elected. He got elected because he captured the heart of the lower classes who bought his speech about how the rich and capitalist imperialists took advantage of the poor and stole from what was rightly ‘the peoples’. There was quite a percentage of middle class Venezuelans who also believed him. It is true – Venezuela used to be riddled with foreign companies, but it was for that reason and that reason only that Venezuelans managed to have a greater quality of life after a terrible Dictatorship. Most of these companies employed mainly Venezuelans. We had it good, Caracas was called the ‘New York City of South America’, we had roads, and schools, and amazing University facilities, and we were able to work hard and save enough money to buy houses and cars (often also for our children). Yes, there was much room for improvement, for but Latin American standards Venezuela used to be very well off before Chavez.

But we let them win. And now we have to deal with the consequences. It has not all been in vain, though – we have grown to be a much different kind of society, we are a society of hate, of distrust, of crime and havoc. We have now reached a point where it is the law of the jungle, and everyone – rich or poor – has it equally bad. Our quality of life has plummeted and it is not getting better. There is not even enough water to sustain certain states anymore. The electricity industry was expropriated and it took the government less than 5 years to bring it to the ground.

We must wake up. It is not acceptable to tolerate these thugs in power.


HappinessIsFreedom Mar 31st, 16:57

What is most amazing to me is how after seeing yet another example of Socialism failing spectacularly in Venezuela, it can still attract people around the world in other countries.
Take Bernie Sanders, a self-admitted Socialist, he is a real threat to become president of the U.S. and destroy the country slowly just like Chavez/Maduro.
“Political leaders in capitalist countries who cheer the collapse of socialism in other countries continue to favor socialist solutions in their own. They know the words, but they have not learned the tune.” – Milton Friedman

In graphics: a political and economic guide to Venezuela

Venezuela: a nation in a state

OF ALL the unflattering words used to describe the state of the country he governs, “disaster” is the one Venezuela’s president, Nicolás Maduro, dislikes the most. Perhaps that is because it is so apt. Under his watch, the nation has entered a steep decline. Mr Maduro has restricted the publication of official economic figures. Those that have been divulged confirm that 2015 was a very bad year. And 2016 is going to be worse.

A global oil boom, which provided Hugo Chávez, Mr Maduro’s populist predecessor, money to lavish on Venezuela’s once neglected poor, is over. Mr Maduro has failed to persuade voters that he is a worthy heir. In a parliamentary election on December 6th 2015 the opposition Democratic Unity alliance (MUD) won two-thirds of the seats, the first time it has won a national election since Chávez came to power in 1999. Mr Maduro’s approval rating is not much above 20%. The new National Assembly is now engaged in a power struggle with the regime. Venezuela’s Supreme Court, which can be counted on to side with the government, has ruled that three opposition MPs cannot be sworn in, depriving the MUD of its “supermajority”. 

The price of oil, which provides 95% of Venezuela’s foreign-exchange earnings, has long dictated the popularity of its leaders. The government’s income from oil in the year to November 2015 was two-thirds lower than during the same period the year before. The oil price has fallen further since then. With less money coming in and demand for imports still strong, the value of Venezuela’s foreign-exchange reserves has dropped alarmingly. A fall during 2015 in the price of gold, of which Venezuela has substantial holdings, has contributed to the decline in reserves.

The current oil slump would be painful, whoever was in power. The regime has greatly compounded the damage with policies that, though designed to favour the poor, end up impoverishing them and the state. Price controls—along with the shortage of foreign exchange—have led to acute shortages of basic goods, forcing people to queue for hours to buy necessities. Inflation is officially running at 141% as of September last year (the latest available figure). Analysts believe the true figure is at least 200% a year; some predict hyperinflation in 2016. The massive budget deficit, which the Central Bank finances by printing money, contributes to that risk.

The government has tried to hold down prices with a Rube Goldberg system of exchange controls. Venezuela has two legal exchange rates, the strongest values the bolívar at 10/$. Venezuelans with connections in the government can obtain dollars at this ridiculously cheap rate, a major source of corruption. But in the unofficial market the bolívar is worth around 130 times less. The market dollar value of most Venezuelans’ pay is thus pitifully low. Although the official price of goods is correspondingly cheap, many are available only at inflated prices in the black market.

To date, Venezuela has given priority to paying its foreign debts. The government has apparently decided that default, however tempting, would be too costly. Many of Venezuela’s assets outside the country (including refineries and oil tankers) could be seized by creditors. Venezuela’s restricted access to credit would be diminished even further if it defaulted. Although a series of multl-billion dollar loans from China, repaid in oil, are helping stave off a crisis, a default may be unavoidable if oil prices do not recover in 2016. The IMF estimates that Venezuela’s GDP shrank by about 10% in 2015, making it the world’s worst performing economy. The government admits the contraction was 7.1% up to the third quarter of 2015 from the same quarter a year earlier. Whatever the true figure, the sharp recession is undermining one of the regime’s proudest claims: that under its rule Venezuela’s poverty has fallen. Extreme poverty did indeed decline under chavismo – as it did worldwide over a similar period – but not as much as the government contended. Since 2014 however, both overall and extreme poverty have deteriorated to the worst levels seen in at least a decade and a half.

In January 2016 Mr Maduro appointed a new economics team, but there are doubts about its willingness to tackle the nation’s troubles. The minister in overall charge of the economy, Luis Salas, is a left-wing sociologist who, like others in the government, attributes the country’s problems to an “economic war”. He rejects some basic tenets of conventional economics, for example that printing too much money causes inflation. The new finance minister, Rodolfo Medina, is thought to be more pragmatic. Recent surveys have shown that alongside the economy and shortages, security is a major concern. The government stopped publishing comprehensive crime statistics in 2005, though it does admit there is a problem. The attorney-general has said that Venezuela’s murder rate last year was 62 per 100,000 people, ten times the global average. The Venezuelan Violence Observatory, an independent research institute, says the rate is higher. The murder rate in Caracas is the highest in the region for a country’s biggest city. Countrywide, 90% of murders go unpunished.

The government tries to keep ordinary Venezuelans ignorant of such demoralising facts through its domination of the media. Chávez began the process of shutting down the free press; Mr Maduro has continued it. Only one national newspaper is relatively independent. State television is filled with hours of pro-government propaganda. Mr Maduro, his wife, Cilia Flores, and the former head of the National Assembly, Diosdado Cabello, all have their own weekly television shows. Opposition politicians, several of whom have been imprisoned, depend upon social media to get their message out. Although the regime has made that as difficult as it can, the opposition’s election victory in December shows that democracy is still alive.

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