En: http://www.cityam.com/article/1394504131/venezuela-s-mad-socialist-experiment-destroying-nation
Allister Heath
IF you want to see how to destroy an economy and a society, look no
further than Venezuela. One year after the death of Hugo Chavez, its
disastrous communist president, the country is on the verge of total
collapse under his equally appalling successor Nicolas Maduro.
Food is running out, as are other essentials, even though the country
claims the world’s largest oil reserves. There are shortages of toilet
paper and soap, empty shelves and massive crowds queuing for hours in
front of supermarkets. Patients are sometimes having to buy their own
medicines; doctors are warning that 95 per cent of hospitals have only
five per cent of the supplies they need. The central bank’s scarcity
index has reached a record of 28 per cent, which means that more than
one in four basic goods are out of stock at any time; and the situation
has worsened considerably since the figures were last compiled.
The reason? A brain-dead rejection of basic economics, and a
hardline, anti-market approach of the worst possible kind. There are
maximum prices, other prices controls, profit controls, capital
controls, nationalisations, expropriations and every other statist,
atavistic policy you can think of. An extreme left wing government has
waged war on capitalism and won; and as ever, ordinary people are paying
the price.
There are constant clashes with the police. At least 20 protesters
have been killed. The media is being censored. The country is now one of
the most dangerous places in the world. Independent observers estimate
that there were close to 25,000 murders in 2013, five times the amount
seen in 1998, when the current regime took over and really started to
wreck the country. There are 30m Venezuelans, less than half the number
of Brits; to put the figures in context, the police recorded 532
homicides in the UK in the year to June 2013.
The government claims that oil production is 3m barrels per day; the
real figure is closer to 2.3m and yet the country is still having to
import petrol. Capital Economics estimates that Venezuela’s overall
exports are 11 per cent lower than the government claims, and that cash
foreign reserves are virtually zero, against a supposed stockpile of
$20bn, including gold. The official exchange rate is 6.3 bolivars per
dollar, which is a bad joke; the real market rate is around 80 bolivars
per greenback. With hard currency running out, and the country having to
fork out $10bn to service its national debt this year, the regime will
soon have to choose between buying food or defaulting.
In the meantime, the money printing presses are in overdrive. The
Johns Hopkins–Cato Institute Troubled Currencies Project estimates that
Venezuela’s implied annual inflation rate has reached 302 per cent;
actually recorded inflation was already an eye-watering 56 per cent last
year. The middle classes and anybody on a fixed income, or who isn’t
protected against inflation, is being wiped out.
This is a hugely important story and yet one which has been covered
insufficiently prominently in the UK, partly because we are
understandably more concerned with what is happening closer to home in
Ukraine. Yet the political blunders and the economic illiteracy at play
in Venezuela have universal applicability, and are therefore just as
relevant to us than Putin’s power grab.
The lesson from all of that is clear. Socialism doesn’t work. Price
controls don’t work. Stealing people’s property doesn’t work. Chasing
away foreigners doesn’t work. Destroying the supply-side of an economy
doesn’t work. Supply, unsurprisingly, has collapsed, as has investment,
and that means fewer goods in the shops as well as reduced incomes.
Companies aren’t allowed to increase prices, despite rampant inflation,
so they are not selling at all. It is a spectacularly horrible case of
what FA Hayek called the Road to Serfdom. The world must pay more
attention to Venezuela’s plight.
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