Price Control Failure
Scarce Food in Venezuela
By Daniel Muniz

Tragically, Venezuela suffers the same fate that has befallen that of so many other third world countries. They have abundant natural resources such as oil yet the nation is experiencing enormous financial hardship even in a global environment where oil prices have skyrocketed in recent years. Instead of the country enjoying the fruits of its petrodollars, inflation has soared out of control and even basic foodstuff has become increasingly scarce with certain supermarkets no longer carrying meat or milk.

So how can a country that is literally swimming in oil money be so bankrupt?

Iconoclastic left wing president Hugo Chavez, in a pledge to protect the poor from the greed of free enterprise, implemented severe price controls on some 400 basic necessities. Poor people would be guaranteed a fixed price regardless of market conditions thus they would be shielded from the effects of inflation. Of course many segments of the population supported this initiative.

However, nothing is free.

Supermarkets had to raise prices in order to make a profit when the cost to purchase their products rose.

When the government retaliated, companies had to either sell their products at a steep loss or not sell them at all. To no one’s surprise, many vendors chose to not sell anything at a loss. As a result, there is now a massive shortage of meat, sugar, milk, cooking oil, and about any other staple. In fact, whenever supermarkets do sell the basics, they usually slap on a hefty markup from the official price which is a serious violation.

Today, there is a huge gap between the actual costs of purchasing the goods wholesale and the government set price. And as time goes on, it will only get worse.

Consequently, when there is a shortage of anything, there are hoarders but more specifically in an increasingly governmentally controlled economy, there are black marketers who are willing to sell anything with a huge markup in a back alley. The black market is its own illicit free market based upon supply and demand.

But more to the point is that price controls have never worked because nothing is free and that is a concept that too much of the third world fails to realize. Only entities that are willing to absorb a loss, namely governments, can live with price controls but not the private sector. Businesses must profit in order to exist and that is just a simple law of economics. They must have a markup in order to maintain a going concern. Without it, they cannot function for very long regardless of how egalitarian operating at a loss may be.

This current situation is a true shame because Venezuela ought to be a rich country with a stable robust financial system. They ought to already have an established infrastructure that can nourish a growing dynamic economy. Instead, runaway inflation is ruining their economic status and increasingly more governmental micromanagement is strangling what is left of their free enterprise system because businesses cannot survive in such an environment.

So instead of helping the poor, price controls are hurting them even more severely than before.

Vendors have absolutely no reason to sell their products at a loss so there are shortages everywhere in the country. As a result, the government must subsidize the basic necessities at an inflated price which depletes more of their own resources. And as this cycle repeats itself, goods become scarcer.

Even the government’s own subsidized chain of markets still has food shortages. People must wait for hours in long lines to obtain whatever little is left.

Naturally, Chavez's administration pins the blame on profiteers instead of on their own mismanagement. They intend to import more food to solve their problems but by crushing their free market, they are only exacerbating their own dire situation because it is free enterprise, not the government that creates prosperity.

To liberals in the United States and abroad, Venezuela is supposed to be a left-wing paradise. While President Hugo Chavez slowly transforms his country’s fragile democracy into an autocratic state, his incessant demonizing of George W. Bush on the world stage delights millions of liberals. And what liberals fancy the most is that Chavez has denounced free enterprise and is intent on socializing the rest of his economy.

But look at the results.

The people are not benefiting. Instead, they are suffering because the basic necessities are in short supply and on the black market, they are outrageously expensive. And more importantly, inflation is wrecking the economy.

But it doesn’t have to be that way. A nation rich in natural resources should not have to experience food shortages. Class warfare may be a wedge issue that can lift up a politician to high office but it cannot solve a nation’s problems.

Hopefully the rest of the world can take note of the price control failure in Venezuela. They don’t have to go down that path. Government micromanagement may sound like an excellent campaign promise but it is an awful economic tool.

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