Monday, February 11, 2008

Chavez on the Wane

Looks like Hugo Chavez is being shown for the poor economist that he is.

From the New York Times:
These should be the best of times for Venezuela, blessed with the largest conventional oil reserves outside the Middle East and oil prices near record highs. But this country’s economic and social problems have become so acute lately that President Hugo Chávez is facing an unusual onslaught of criticism, even from his own supporters, about his management of the country.

It doesn't take much to figure out why Venezuela is doing poorly even with high oil prices. Socialism doesn't work.

Here is a snipit from a Jackson Diehl column:
Venezuelans not worrying about war are increasingly obsessed with the remarkable result of Chávez's disastrous economic policies: worsening shortages of consumer goods and soaring prices, a combination previously seen only in such benighted places as Robert Mugabe's Zimbabwe. Almost every day, newspapers report another addition to the items missing from store shelves: from milk, bread, sugar, chicken, eggs, rice and cheese to auto parts and over-the-counter drugs. A black market thrives; food is smuggled across the border to Colombia, while cocaine in increasing quantities is trafficked back to Venezuela. Chávez recently raised the price of milk 37 percent, contributing to an inflation rate that hit 22 percent in 2007 and 3.4 percent in just the month of January. But he also threatened to seize private banks, farms, supermarkets and food distributors, thereby ensuring that the investments needed to end the shortages will not take place.

That pretty much sums it up in a paragraph. When you impose price controls, you will get shortages.

Not being able to handle, conceptually, the dynamic nature of real-world economic behavior is a pattern of the global Left. Probably not exclusive of the Left, but I usually notice it there.

Here is an example of leftist thinking which I predict will backfire:
Venezuela's seizure last year of several heavy oil projects, including Exxon's, is the latest example of emerging oil producers placing greater demands on global oil giants. The heavy oil projects are based in Venezuela's Orinoco Belt, a basin near the Orinoco River, which is believed to hold up to 235 billion barrels of recoverable crude. Global oil companies were awarded contracts in the 1990s to take the extra-heavy crude, which has the consistency of tar, and refine it to higher, more profitable blends for export. Venezuela began changing its royalty agreements with the oil companies in October, 2004. At that time, companies were paying 1% of the value of oil extracted from the ground. That was unilaterally raised to 16.67%, and then to 30%. Last July, Venezuela forced six oil giants to hand over equity stakes of 60% or more in four important ventures to PDVSA. Four of the companies agreed to the handover, but Exxon balked—and went to court to seek what it considered just compensation.

And another, again, from the New York Times:
Pedro E. Piñate, an agricultural consultant in the city of Maracay, said: “We live in two countries, one inhabited by officials who think they can alter reality by sending soldiers to intimidate citizens. The other country is where the rest of us live in fear of being killed or kidnapped or of our businesses being seized.”

Capitalism requires risk. People invest money. They may lose it. But for that risk, they get rewards. If you threaten the return on investment, you have a lose-no-win proposition. People will stop investing money.

And that means that Venezuela will have problems.

Labels: , , ,

Comments: Post a Comment

<< Home

This page is powered by Blogger. Isn't yours?