The Devil's Excrement

Venezuela has many problems, old ones and
new ones. Anyone that believes that Government alone can solve all of them,
ignores both history and economics. In order to improve the lot of all
Venezuelans to acceptable levels there has to be a huge increase of at least
300-400% in the size of the country’s economy. Simple math shows that in the
last seven years, oil income has increased by a factor of four and nevertheless
that has not translated into an increase in the general well being of all Venezuelans
or in the size of the economy. Government alone just can’t do it; you need the
multiplier effect of the private sector in all areas of economic activity.

Two areas
where results in the last seven years, despite the hoopla, have not been good
are housing and agriculture. You can see a graph of the number of housing units
which is a
year old here. As you can see there, the number of new housing units built
by this administration each year is much less than those built during Caldera
and CAP II and those were terrible Governments, which are looking better
everyday! In fact, the Chavez administration in the last five years has built fewer
units than in the worst of the last four of Caldera’s years. 2005 was no
different. Despite Chavez lashing at his collaborators (and firing them!), his
unrealistic goal
of building 120,000 units was not even close. The last numbers are not yet in, but
in September the totals had reached less than 20,000 units in 2005, according
to the Government.

But the
Government continues its stubborn path to failure. The last seven years have
seen little construction of new housing units due to the uncertainty about private
property rights, as well as the fact that the Government decided to go at it
alone in building housing projects. Thus, the shortage of 1.7 million housing
units estimated by the Government a year ago continues to grow everyday. It
sometimes even gets funny as municipal officials have begun using the term “houses
from the secondary market” when referring to housing purchased from th private
sector by municipalities to solve emergencies when landslides occur.  

If you
want the cooperation of the private sector you need to send the right signals.
But the opposite is happening. Only yesterday, the Mayor of the Metropolitan
area of Caracas
expropriated two buildings, a brand new one and an old one, to give it to those
affected by the rains both in the vicinity of the viaduct, as well as near the
Cotiza brook in the West of Caracas. (By the way, that brook overflowed in the
1999 floods and the people went back to it, five people died two days ago when
a dam in Avila mountain gave in)

I watched
on TV when the Mayor arrived at the private new building to announce its
expropriation and take it over. The owner was there and asked the Mayor if he
had a representative from the Attorney Generals’ office, as required by law.
The Mayor said no, but went on to say that it did not matter because the
procedure was perfectly legal. Of course, no price has been set and this man,
who claims he put all of his money into this project of building an eight story
apartment building, says he now has no money and will have none until he gets
compensated, if it ever happens. So much for the Constitutional guarantee of
private property rights.

Similar
things are happening in agriculture, another area that Chavez has given a high
priority to. There has been an upturn in production in the last two years, as
interest on loans have dropped, but little of it comes from the takeover of
latifundia, most of which remain in the hands of the Government or have not
been exploited. Moreover, Mercal, rather than becoming a motor for local agricultural
production has become a huge importer that meets with local producers and
threatens them with imports rather than trying to work with them to produce
more locally.  Some of Venezuela’s
crops like coffee and cocoa have a lot of potential to become important export industries.
But this has been the case for decades and nothing ever happens.

The last
few months has seen a fight over wholesale prices for coffee that remain well
below international ones even after the recent adjustments. But coffee prices
at the retail level remain controlled at Bs. 7,400 per kilogram (US$ 3.44 per
kilo or US$ 1.56 per pound at the official exchange rate, way below world
market prices). The last few weeks there have been shortages of coffee and this
week a Government official suggested an increase in the controlled price was imminent,
which led to even more scarcity. Then on Wednesday the consumer protection
agency (Indecu) impounded
300 Tons of coffee at the distributor’s warehouses and two additional raids have
taken place. The coffee will be forcefully purchased at the official controlled
price.

Clearly, this
is no way to run an industry, if you are forced to sell your coffee at the
lowest price, can not even export it, even at the official exchange rate, there
are few incentives to invest, produce and as one coffee grower put it: why
should I even pick the coffee to sell it at a loss? There goes jobs,
investments, etc.

And then
today we had the bully himself, Hugo Chavez, saying that if coffee growers do
not sell the coffee to the distributirs, “we will take it away, that coffee
does not belong to them, it belongs to the country”. Well, so did the Caracas-La
Guaira viaduct and those entrusted with taking care of it did not and I see
nobody assuming that responsibility. And then Chavez began arguing about the
law, which guarantees private property and not the coffee for the President to
drink.

This is no way to run a country and these
industries will slowly disappear, much like the sugar industry in Cuba did, due
to Government control stifling it. The Government can not be coffee grower,
airline owner, telecom owner, hospital runner, regulator, steel producer and
oil producer all at the same time, just to give some examples. This Government,
much like the Cepal-oriented ones of the 60’s in Venezuela, is trying to do it all and
it just does not work. You need investment, technology and the ability to
compete here or abroad to make all these industries grow and be competitive. You
can’t regulate below cost of production. But when knowledge and common sense
are left aside the outlook simply becomes grim. And right now it is as grim as
the feeling one gets when looking at the pictures of the viaduct

This entry was posted on January 7, 2006 at 1:24 am and is filed under Venezuela.