The latest problem in Venezuela

[Trausti]

Come on, now.



http://www.economist.com/blogs/americasview/2010/10/expropriations_venezuela

Right, because the Economist blog isn't a biased source at all.

Agroisleña had the same problem as Venezuela's other government-based businesses: its managers were using the company as their personal ATM and assuming oil profits would make the shortfalls disappear. It was, if nothing else, an attempt to reduce prices and increase distribution to the country's poor and needy; its managers did NEITHER of these things.

So all those expropriations were just imagined? Point is, before the expropriations, whether these private companies were managed well or not, there was plenty of food. Venezuela is blessed with sunshine and rain. No one should go hungry there. After the government took over private industry, food lines appeared. And this focus on oil profits as the be-all-end-all is ridiculous. Plenty of countries have few or no exportable natural resources, but yet somehow are prosperous - South Korea, Singapore, etc. Blaming lost oil profits for the inevitable consequences of state control over the economy is inexcusably misinformed.

 

[dismal]

I didn't realize whether there were nationaliztions was up for debate. The Chavistas used to be proud of them.

Even the Huffington Post seems to think these nationalizations occurred:

Venezuela is facing a manmade food crisis. In the mid-2000s, under President Hugo Chávez, the state implemented a series of ill-conceived economic policies: price controls, arbitrary expropriations, overvalued exchange rates and overregulation of the private sector. These policies destroyed Venezuela’s capacity to produce goods domestically, including food. Between 2008 and 2014, which analysts often consider boom years in Venezuela, the agricultural gross domestic product per capita shrank by an average of 4.7 percent annually.

When oil prices were high, from 2004 to 2013, the government could ignore the collapse of domestic production because it could spend petrodollars on imports. But when oil prices started declining in 2014, the government adjusted by reducing the money available for imports. This reduction affected food, fertilizer and agricultural equipment. The result is today’s food crisis.

http://www.huffingtonpost.com/javier-corrales/venezuela-government-hunger_b_11429014.html

The destruction of the nation's ability to produce food has been going on for some time.

 

[Crazy Eddie]

Right, because the Economist blog isn't a biased source at all.

Agroisleña had the same problem as Venezuela's other government-based businesses: its managers were using the company as their personal ATM and assuming oil profits would make the shortfalls disappear. It was, if nothing else, an attempt to reduce prices and increase distribution to the country's poor and needy; its managers did NEITHER of these things.

So all those expropriations were just imagined? Point is, before the expropriations, whether these private companies were managed well or not, there was plenty of food.

Of course there was. It's just that poor Venezuelans didn't necessarily have access to it. The cause of the shortage was a combination of the ineptitude of the managers who took over those companies plus the falling oil prices that reduced their operating subsidies and imports plus the price fixing and massive increase in distribution as part of Chavez's social programs. Any two of those things might have been mitigated, but the three together result in a major fuckup.

If, for example, the people managing those companies had retained enough of the original employees who knew what they were doing, productivity could have been maintained and the fall in oil prices could have been mitigated by increasing production further. Cutting the price controls could have accomplished that too, but it would have put a burden on the poor for getting access to those products.

Venezuela is blessed with sunshine and rain. No one should go hungry there.

No one should go hungry HERE, and yet it still happens.

Plenty of countries have few or no exportable natural resources, but yet somehow are prosperous - South Korea, Singapore, etc.

Both of which make most of their national income by high-level participation in the value-added or knowledge economies. They don't have to export material goods, they can exchange their services for the things they cannot produce domestically.

Venezuela doesn't have that option. Even their educated elite don't really have the technical skills or service to export their skills in exchange for international trade.

You seem to be doing a certain amount of Magical Thinking here. Obviously you think the expropriations are what caused the problem, but HOW? It's not like the laws of physics automatically change in the vicinity of a government-owned business. The same things problems Venezuela is having now are the problems they would have under privately-owned companies in the same circumstances; the only difference being that blame would be assigned to incompetent individuals instead of to an entire political ideology as if LEFTISIM ITSELF is the reason why incompetent managers can't be bothered to harvest their summer crops on time.

 

[dismal]

You seem to be doing a certain amount of Magical Thinking here. Obviously you think the expropriations are what caused the problem, but HOW?

You can't think of a reason why the threat of having a business nationalized might cause someone to invest less time, effort and capital in producing things? Seriously?

 

[Trausti]

So all those expropriations were just imagined? Point is, before the expropriations, whether these private companies were managed well or not, there was plenty of food.

Of course there was. It's just that poor Venezuelans didn't necessarily have access to it. The cause of the shortage was a combination of the ineptitude of the managers who took over those companies plus the falling oil prices that reduced their operating subsidies and imports plus the price fixing and massive increase in distribution as part of Chavez's social programs. Any two of those things might have been mitigated, but the three together result in a major fuckup.

If, for example, the people managing those companies had retained enough of the original employees who knew what they were doing, productivity could have been maintained and the fall in oil prices could have been mitigated by increasing production further. Cutting the price controls could have accomplished that too, but it would have put a burden on the poor for getting access to those products.

Venezuela is blessed with sunshine and rain. No one should go hungry there.

No one should go hungry HERE, and yet it still happens.

Plenty of countries have few or no exportable natural resources, but yet somehow are prosperous - South Korea, Singapore, etc.

Both of which make most of their national income by high-level participation in the value-added or knowledge economies. They don't have to export material goods, they can exchange their services for the things they cannot produce domestically.

Venezuela doesn't have that option. Even their educated elite don't really have the technical skills or service to export their skills in exchange for international trade.

You seem to be doing a certain amount of Magical Thinking here. Obviously you think the expropriations are what caused the problem, but HOW? It's not like the laws of physics automatically change in the vicinity of a government-owned business. The same things problems Venezuela is having now are the problems they would have under privately-owned companies in the same circumstances; the only difference being that blame would be assigned to incompetent individuals instead of to an entire political ideology as if LEFTISIM ITSELF is the reason why incompetent managers can't be bothered to harvest their summer crops on time.

Are you really suggesting that had the expropriations not taken place that these food lines would have existed nonetheless? That's astonishing. We now have pretty much a century of evidence showing the inefficiencies of government control vs private enterprise. My preferred example is the Soviet Union, where the ~3% of private agricultural plots wildly outperformed the government run collective farms. Reading the history of the Soviet economy is illuminating. Then there's China. It still has anti-democratic government; yet the quality of life difference from before economic liberalization in the 1970s (i.e., private enterprise) is extraordinary.

The crux is that government apparatchiks are lousy at business - that's why they're in government. When the government takes over industry it appoints managers based on loyalty to the powers that be; talent is a secondary consideration at best. If you doubt me, remember that Michael Brown was appointed by the Bush administration to run FEMA, not because of his years of experience in emergency management, but because he was friends with Bush's former campaign manger. And that's what you get when the government attempts to manage an industry - payoffs and favors to reward loyalty. What chance would a non-Chavista have to be appointed to run one of the private business expropriated in Venezuela?

And then there's the problem of stifling competition. Who would attempt to start a private business in an environment when the government promotes an expropriation policy? Thus, when the government-appropriated business predictability fails there are no other actors to provide what the market desperately needs.

Lastly, there are other countries which are heavy reliant on oil exports. Amazingly, their people are not starving.

 

[T.G.G. Moogly]

You seem to be doing a certain amount of Magical Thinking here. Obviously you think the expropriations are what caused the problem, but HOW?

You can't think of a reason why the threat of having a business nationalized might cause someone to invest less time, effort and capital in producing things? Seriously?

Good point.

 

[dismal]

The crux is that government apparatchiks are lousy at business - that's why they're in government.

There are more than just the general issues associated with nationalizations going on here. There are Venezuela policy specific issues. The government first sets in place policies (price controls, currency exchange rates, etc) that make it so producers are no longer willing or able to produce products. Then it scapegoats the producer as part of some conspiracy and nationalizes the business. But surprise, once the business is nationalized all those problems the government created for the industry don't just go away. They still can't get raw materials. They still can't make money at the price controlled prices. They could perhaps rely on government largesse from oil money to overcome these things, but there just isn't enough to go around any more. Most of the nationalized businesses sit idle.

 

[Crazy Eddie]

You seem to be doing a certain amount of Magical Thinking here. Obviously you think the expropriations are what caused the problem, but HOW?

You can't think of a reason why the threat of having a business nationalized might cause someone to invest less time, effort and capital in producing things? Seriously?

I can think of lots of reasons.

Which ones are relevant in THIS case?

Are you really suggesting that had the expropriations not taken place that these food lines would have existed nonetheless?

I'm saying the food lines ALREADY existed, then disappeared for a while, then came back. Venezuela has been many things over the years, but it was HARDLY a shining beacon of economic prosperity when Chavez came to power, which is basically HOW he got to power in the first place.

The crux is that government apparatchiks are lousy at business - that's why they're in government. When the government takes over industry it appoints managers based on loyalty to the powers that be; talent is a secondary consideration at best.

You're describing cronyism, not socialism. I've already stated that cronyism is THE biggest problem facing Venezuela's econony.

The question I asked you is what does Nationalization have to do with that? Unless you're starting from the assumption that corruption among private industry is impossible or that Venezuela's businessmen weren't engaging in some price fixing of their own before the Chavistas came to power.

Who would attempt to start a private business in an environment when the government promotes an expropriation policy?

That's like asking "Who would want to start a meth lab in an environment where methamphetamines is highly illegal and its manufacturers are hunted down in military-style raids?" The answer turns out to be "More people than you'd expect."

But again, there's a difference between cronyism and corruption and socialism. Nationalization and price fixing was Chavez's plan for changing the distribution of resources to benefit Venezuela's poor. THAT wasn't that bad of an idea, and neither were the proposed education reforms and subsidization of higher education. The IDEAS weren't the problem, the people he put in charge to implement them (a combination of crooks and liars only out for themselves) were the problem.

And to be honest, I have worked with and helped start too many small businesses over the years to even BEGIN to pretend that governments have a monopoly on "self-absorbed twits running a businesses into the ground just to fatten their own wallets." It happens ALOT, it's just that our economy is robust enough to pick up the slack when those businesses fail. Venezuela isn't, and arguably it never was.

Lastly, there are other countries which are heavy reliant on oil exports. Amazingly, their people are not starving.

I wouldn't be so sure. And the same can be said for Yemen, which has just about one tenth of Venezuela's oil production. Which may be a case study in "what happens when your entire economy mainly depends on a single resource" now that Yemen has basically disappeared up its own asshole.

And Venezuela's production isn't anywhere NEAR that of Saudi Arabia's; they had about one fifth of its income even at the height of the oil boom, and then only for a handful of years in which time Chavez's cronies were interested in nothing but lining their own pockets.

 

[dismal]

You can't think of a reason why the threat of having a business nationalized might cause someone to invest less time, effort and capital in producing things? Seriously?

I can think of lots of reasons.

Which ones are relevant in THIS case?

I would think the threat of nationalization would make people less willing to invest their time and capital building a business in every case. It's not that complicated. If someone can just come and take your stuff you have less incentive to build stuff.

This article shows how it applies in THIS CASE, I guess:

In Venezuela, that’s just the first hurdle. For the last decade, price controls have been in effect for food and other basic goods. The socialist government of Hugo Chavez sought to tamp down inflation. But like the U.S. experiment with price controls in the 1970s, government-controlled low prices squeezed profits and producers, creating shortages.

“For many products, the profit margin is nonexistent,” said rancher Finol. “Now we are producing where our costs are higher than the selling price.”

The country’s agriculture has shrunk from a significant slice of economic output to less than 4 percent. Today, Venezuela imports 80 percent of its food.

Still, when cattlemen in Zulia tally their issues, they almost run out of fingers. Since 2001, the government has expropriated – that is, confiscated – private acreage on grounds of land reform and redistribution. It took land from the family of dairy farmer Albert Zambrano’s wife.

“You don’t feel safe, to invest, to produce,” Zambrano said, “because tomorrow the government could come and say ‘this is ours now.’”

http://www.marketplace.org/2016/04/18/world/resource-curse/venezuela-ranchers

 

[Derec]

To claim low oil prices somehow caused this disaster in Venezuela is very naive. In the 90s oil prices were much lower, about $10 ($14.50 in today's dollars) at the bottom of the market. The oil price is in the 40s now! Yet there was still food and toilet paper in the stores. Inflation was in double digits (20-30%) and not in high triple digits and in danger of going into four digits.
It is the Chavez/Maduro policies that destroyed Venezuelan economy. That started back when Chavez took power but high prices could mask the rot for a while.

 

[Crazy Eddie]

I can think of lots of reasons.

Which ones are relevant in THIS case?

I would think the threat of nationalization would make people less willing to invest their time and capital building a business in every case. It's not that complicated. If someone can just come and take your stuff you have less incentive to build stuff.

While that makes a certain amount of sense, it doesn't really explain what happened to businesses that were already in place and not in need of new investment. Their productivity DROPPED, rather than simply stagnated.

Sour grapes of the capitalist class notwithstanding (they use the same talking points with such uniformity that you'd almost think they practice their lines together) the problem seems to be the ineptitude of the officials making those expropriations in the first place. The land is confiscated for redistribution but never actually distributed to anyone who knows how to use it. It's like "Forty Acres and Two Mules" except they deliberately give the land only to carpetbaggers and their drinking buddies.

 

[Loren Pechtel]

I would think the threat of nationalization would make people less willing to invest their time and capital building a business in every case. It's not that complicated. If someone can just come and take your stuff you have less incentive to build stuff.

While that makes a certain amount of sense, it doesn't really explain what happened to businesses that were already in place and not in need of new investment. Their productivity DROPPED, rather than simply stagnated.

Sour grapes of the capitalist class notwithstanding (they use the same talking points with such uniformity that you'd almost think they practice their lines together) the problem seems to be the ineptitude of the officials making those expropriations in the first place. The land is confiscated for redistribution but never actually distributed to anyone who knows how to use it. It's like "Forty Acres and Two Mules" except they deliberately give the land only to carpetbaggers and their drinking buddies.

1) When you fail to spend the money on upkeep you expect to see a slow decline.

2) There was also a drain on their production before things fell apart. The first controls weren't all that harmful, businesses continued on (albeit probably extracting as much money as possible rather than plowing it back into the business as they knew what was likely to happen down the road) but as time went on they got worse and worse.

 

[dismal]

I would think the threat of nationalization would make people less willing to invest their time and capital building a business in every case. It's not that complicated. If someone can just come and take your stuff you have less incentive to build stuff.

While that makes a certain amount of sense, it doesn't really explain what happened to businesses that were already in place and not in need of new investment. Their productivity DROPPED, rather than simply stagnated.

Sour grapes of the capitalist class notwithstanding (they use the same talking points with such uniformity that you'd almost think they practice their lines together) the problem seems to be the ineptitude of the officials making those expropriations in the first place. The land is confiscated for redistribution but never actually distributed to anyone who knows how to use it. It's like "Forty Acres and Two Mules" except they deliberately give the land only to carpetbaggers and their drinking buddies.

I thought I had explained that. First the government fucked up the industries to the point they did not produce with price controls and currency restrictions. Then the government nationalized them without solving the reason they weren't producing so they continued not producing. Once you have destroyed respect for private property and the rule of law it's hard to recover.

It's odd to me that you dismiss this government inflicted humanitarian disaster as "sour grapes of the capitalist class".

 

[Trausti]

 

[Crazy Eddie]

See here's the thing that gets me.

This statement:

First the government fucked up the industries to the point they did not produce with price controls and currency restrictions. Then the government nationalized them without solving the reason they weren't producing so they continued not producing.

Is almost entirely unrelated to the one that follows it:

Once you have destroyed respect for private property and the rule of law it's hard to recover.

And yet you say them as if they're part of the same idea. As if the reason those industries are suffering is because the nationalization hurts people's feelings.

I don't see the connection there. They did a lot of stupid things that allowed corruption and graft to set in which appears to be the root of the entire problem. I don't see why "massive corruption and graft" isn't good enough and why you feel the need to inject this Randian narrative into every analysis.

 

[Trausti]

See here's the thing that gets me.

This statement:


Is almost entirely unrelated to the one that follows it:

Once you have destroyed respect for private property and the rule of law it's hard to recover.

And yet you say them as if they're part of the same idea. As if the reason those industries are suffering is because the nationalization hurts people's feelings.

I don't see the connection there. They did a lot of stupid things that allowed corruption and graft to set in which appears to be the root of the entire problem. I don't see why "massive corruption and graft" isn't good enough and why you feel the need to inject this Randian narrative into every analysis.

So name a country that nationalized most businesses and didn't go to shit.

 

[dismal]

See here's the thing that gets me.

This statement:


Is almost entirely unrelated to the one that follows it:

Once you have destroyed respect for private property and the rule of law it's hard to recover.

And yet you say them as if they're part of the same idea. As if the reason those industries are suffering is because the nationalization hurts people's feelings.

I don't see the connection there. They did a lot of stupid things that allowed corruption and graft to set in which appears to be the root of the entire problem. I don't see why "massive corruption and graft" isn't good enough and why you feel the need to inject this Randian narrative into every analysis.

Why would "corruption and graft" necessarily stop people from growing food?

If some corrupt process bestowed upon me a cattle ranch, I would think I would want to benefit from it by producing and selling some cattle.

 

[Crazy Eddie]

See here's the thing that gets me.

This statement:


Is almost entirely unrelated to the one that follows it:


And yet you say them as if they're part of the same idea. As if the reason those industries are suffering is because the nationalization hurts people's feelings.

I don't see the connection there. They did a lot of stupid things that allowed corruption and graft to set in which appears to be the root of the entire problem. I don't see why "massive corruption and graft" isn't good enough and why you feel the need to inject this Randian narrative into every analysis.

So name a country that nationalized most businesses and didn't go to shit.

Germany and Japan, being relatively famous examples.

Corruption and graft are actually advantages in a fascist government. Ironically, this means the real problem with the Chavistas is that they're too half-assed to go full fascist.

 

[Crazy Eddie]

See here's the thing that gets me.

This statement:


Is almost entirely unrelated to the one that follows it:


And yet you say them as if they're part of the same idea. As if the reason those industries are suffering is because the nationalization hurts people's feelings.

I don't see the connection there. They did a lot of stupid things that allowed corruption and graft to set in which appears to be the root of the entire problem. I don't see why "massive corruption and graft" isn't good enough and why you feel the need to inject this Randian narrative into every analysis.

Why would "corruption and graft" necessarily stop people from growing food?

For the usual reasons anyone anywhere thinks "corruption and graft" are bad things in the first place.

If some corrupt process bestowed upon me a cattle ranch, I would think I would want to benefit from it by producing and selling some cattle.

Let's take that example literally and consider the following question: Have you ever actually run a cattle ranch before? Do you actually know how to produce and sell cattle? Do you have any experience with that job?

And even assuming you do, why would you go through the trouble of doing all that when the government pays your salary no matter what you do with the ranch and you can just sit on your ass watching cartoons all day?

And that's assuming you aren't PART of the corruption process yourself and taking advantage of the confiscation program to write your own paycheck wasn't the entire point from the get-go. If there was room for a "Let's do some good for the country!" guy in that process, it wouldn't be a corrupt one.

 

[dismal]

Some more stats on the destruction of various industries:

Last year, the country produced 242,306 tons of refined sugar, less than one-third of the 740,000 tons produced in 2006 when the country came close to meeting annual consumer demand of 900,000 tons, according to figures from Fesoca, the Venezuelan sugar trade association.

But 2006 also was the year that President Hugo Chavez nationalized 10 of the 16 privately owned sugar refineries and turned them over to worker cooperatives, part of his “21st Century Socialism” agenda. After taking office in 1999 and until his death in 2013, Chavez also seized thousands of acres of sugar cane plantations and made them communal properties.

Comradely gestures to be sure, but sugar production has rapidly declined ever since the seizures. In May, scarcities got so bad that Coca-Cola temporarily suspended production of its popular line of soft drinks, saying it couldn’t buy enough supplies of the industrial sweetener.

Conindustria estimates that Venezuela has lost 1.2 million direct and indirect manufacturing jobs since 1999.

“Two decades ago, Venezuela had 12,700 industrial companies,” Olalquiaga said. “Only 4,000 are left….The government of President Maduro has been absolutely incompetent in taking correct policies and so the deterioration of the few companies left has continued.”

The auto industry has been hit especially hard. According to Cavenez, the Venezuelan automobile trade association, this year Venezuelan assembly lines are on course to produce around 4,000 cars. During the 1980s, Venezuela sometimes averaged upwards of 200,000 autos assembled yearly

.

http://www.latimes.com/world/mexico-americas/la-fg-venezuela-imports-20160809-snap-story.html

This has nothing to do with oil price.