When the state imposes price controls, profits decline, and incentive to create decreases. Now, in a very prosperous country, following Chave’z price controls, there are massive shortages of products in stores. Even in the Times realizes what the problem is.
The shortages affect both the poor and the well-off, in surprising ways. A supermarket in the upscale La Castellana neighborhood recently had plenty of chicken and cheese — even quail eggs — but not a single roll of toilet paper. Only a few bags of coffee remained on a bottom shelf.
Asked where a shopper could get milk on a day when that, too, was out of stock, a manager said with sarcasm, “At Chávez’s house.”
At the heart of the debate is President Hugo Chávez’s socialist-inspired government, which imposes strict price controls that are intended to make a range of foods and other goods more affordable for the poor. They are often the very products that are the hardest to find.
The deadweight losses of these price controls to societies are atrocious. In addition to scarcity, people now must spend their time waiting on lines to buy goods at the time of shipments.
By 6:30 a.m., a full hour and a half before the store would open, about two dozen people were already in line. They waited patiently, not for the latest iPhone, but for something far more basic: groceries. . . . “Whatever I can get,” said Katherine Huga, 23, a mother of two, describing her shopping list. She gave a shrug of resignation. “You buy what they have.”
Venezuela is one of the world’s top oil producers at a time of soaring energy prices, yet shortages of staples like milk, meat and toilet paper are a chronic part of life here, often turning grocery shopping into a hit or miss proposition.
Some residents arrange their calendars around the once-a-week deliveries made to government-subsidized stores like this one, lining up before dawn to buy a single frozen chicken before the stock runs out. Or a couple of bags of flour. Or a bottle of cooking oil.
“Venezuela is too rich a country to have this,” Nery Reyes, 55, a restaurant worker, said outside a government-subsidized store in the working-class Santa Rosalía neighborhood. “I’m wasting my day here standing in line to buy one chicken and some rice.”
Even the times gets it!
Venezuela was long one of the most prosperous countries in the region, with sophisticated manufacturing, vibrant agriculture and strong businesses, making it hard for many residents to accept such widespread scarcities. But amid the prosperity, the gap between rich and poor was extreme, a problem that Mr. Chávez and his ministers say they are trying to eliminate. . . .
But many economists call it a classic case of a government causing a problem rather than solving it. Prices are set so low, they say, that companies and producers cannot make a profit. So farmers grow less food, manufacturers cut back production and retailers stock less inventory. Moreover, some of the shortages are in industries, like dairy and coffee, where the government has seized private companies and is now running them, saying it is in the national interest.
No profits, no incentives:
If there is one product that Venezuela should be able to produce in abundance it is coffee, a major crop here for centuries. Until 2009, Venezuela was a coffee exporter, but it began importing large amounts of it three years ago to make up for a decline in production.
Farmers and coffee roasters say the problem is simple: retail price controls keep profits close to or below what it costs farmers to grow and harvest the coffee. As a result, many do not invest in new plantings or fertilizer, or they cut back on the amount of land used to grow coffee. Making matters worse, the recent harvest was poor in many areas.
They blame unfettered capitalism for the country’s economic ills and argue that controls are needed to keep prices in check in a country where inflation rose to 27.6 percent last year, one of the highest rates in the world. They say companies cause shortages on purpose, holding products off the market to push up prices. This month, the government required price cuts on fruit juice, toothpaste, disposable diapers and more than a dozen other products.
“We are not asking them to lose money, just that they make money in a rational way, that they don’t rob the people,” Mr. Chávez said recently.
The government appears keenly aware of the twin threats of shortages and inflation as it prepares for the October election in which Mr. Chávez is seeking a new six-year term. The price controls have been defended in government advertisements and accompanied by repeated threats from Mr. Chávez to nationalize any company that cannot keep its products on the market.
And preppers would not do well in Venezuela:
Vice President Elías Jaua has warned of a media campaign to frighten Venezuelans into hoarding, which would provoke artificial shortages. Government advertisements urge consumers not to succumb to panic buying, using a proverbial admonition: Bread for today is hunger for tomorrow.