Following the Mugabe model – Venezuela today looks like Zimbabwe 15 years ago
Apr 2nd 2016 Economist
Visting a supermarket in Venezuela is like entering Monty Python’s cheese-shop sketch. “Do you have any milk?” The shop assistant shakes her head. Sugar? No. Coffee? No. Soap? No. Cornflour? No. Cooking oil? No. Do you in fact have any of the products that the government deems so essential that it fixes their prices at less than what it costs to make them? No.
This is hard cheese for the masses queuing outside in the hope that a truck carrying something, anything, will arrive. Yesenia, a middle-aged lady from a village near Caracas, got up at midnight, rode a bus to the capital, started queuing at 3am and is still there at 10am. “It’s bad, standing here in the sun. I’ve had no breakfast, and no water.” Why does she think there are such severe shortages? “Bad administration.”
Cash machines in Caracas spit out crisp new bills with consecutive serial numbers. The last time your correspondent saw such a thing was in Zimbabwe in the early 2000s. The IMF predicts that inflation will be 720% in Venezuela this year, a figure Zimbabwe hit in 2006. By 2008 Zimbabwe was racked by hyperinflation so crippling that beggars who were offered billion-Zimbabwe-dollar bills would frown and reject them.
Might Venezuela go the way of Zimbabwe? They are culturally very different, but the political parallels are ominous. Both countries have suffered under charismatic revolutionary leaders. Robert Mugabe has ruled Zimbabwe since 1980. Hugo Chávez ran Venezuela from 1998 until his death in 2013. His handpicked successor, Nicolás Maduro, continues his policies, though with none of Chávez’s—or Mr Mugabe’s—political adroitness.
Mr Mugabe seized big commercial farms without compensation, wrecking Zimbabwe’s largest industry. Chávez expropriated businesses on a whim, sometimes on live television. He sacked 20,000 workers from the state oil firm, PDVSA, and replaced them with 100,000 often incompetent loyalists, some of whom were set to work stitching revolutionary T-shirts.
Mr Mugabe lost a referendum in 2000 but rigged the subsequent election to keep the (more popular) opposition out of power. The chavistas lost a parliamentary election in December but have used their control of the presidency and supreme court to neuter the (more popular) opposition.
Mr Mugabe recruited a ragtag militia of “war veterans” to intimidate his opponents. Chávez recruited gangs from the slums, known as colectivos, to terrorise his. On March 5th gangsters on motorbikes rode around the (opposition-controlled) National Assembly and sprayed pro-government slogans such as “Chávez vive” on its walls. Police stood and watched.
Yet the key similarity between the two regimes is not their thuggishness but their economic ineptitude. Both believe that market forces can be bossed around like soldiers on parade. In both cases, the results are similar: shortages, inflation and tumbling living standards.
Mr Mugabe, who like the chavistas professes great concern for the poor, fixed the prices of several staple goods in the early 2000s to make them “affordable”. They promptly vanished from the shelves. The subsidies that are supposed to make price controls work have often been stolen in both countries. Suppliers, rather than giving goods away at the official price, prefer to sell them on the black market.
Retail riot police
Ana, a young hawker in Caracas, explains how it works. She holds a bag of washing powder that is supposed to be sold for 32 bolívares. She bought it for 400 and will sell it for 600. Her business is illegal, but she conducts it openly in a crowded square. Nearby, hawkers from the countryside haggle over illicit nappies. The bus ride to Caracas was 13 hours; the hawkers say they come every two weeks.
Outside a state-owned supermarket, a dozen national guardsmen equipped with body armour, truncheons and tear-gas are stopping a pregnant woman from coming in. It’s not one of her designated days of the week for shopping, they explain. (You get two.) Shoppers must show their identity cards to enter the store and have their fingerprints scanned before buying their ration of price-controlled goods.
Yet such measures are no match for the law of supply and demand. Suppose you are driving a tanker of subsidized petrol. You can sell the cargo legally in Venezuela for $100, or drive across the border to Colombia and sell it for $20,000. The pitifully paid border police will be easy to square.
Wily entrepreneurs find ways around price controls without violating the letter of the law. When bread was price-controlled in Zimbabwe, bakers added dried fruit and called it “raisin bread”, which was not price-controlled. Venezuelan firms have added garlic to rice, called it “garlic rice” and sold it at unregulated prices.
Ridiculous laws breed bitter comedy. A Venezuelan company boss recalls a time when he could not buy toilet paper. He rang up a friend who ran a paper company. The friend said he couldn’t sell him a single pack, but he could sell him a small truckload, company to company. It cost less than the single pack he had initially asked for.
Mr Mugabe has long blamed his country’s economic woes on speculators, traitors, imperialists and homosexuals. Mr Maduro, to his credit, doesn’t blame gay people. But he insists that local capitalists and their American allies are waging an “economic war” on Venezuela. This is absurd: in both economies the assaults have come from their own governments.
By the most overvalued official exchange rate, ten bolívares are worth one American dollar. On the black market, the same dollar fetches 1,150 bolívares. Zimbabwe abandoned its worthless currency not long after monthly inflation hit 80 billion per cent in November 2008. Zimbabweans now use American dollars and other foreign currencies. Real incomes in Zimbabwe fell by two-thirds between 1980, when Mr Mugabe took over, and 2008. They have partially recovered, thanks to dollarisation and the scrapping of some of the old man’s daftest policies.
For Venezuela, the lesson is plain. If it fails to pick a better model than Mugabenomics, things will only get worse. The Venezuelan opposition are keen to change course. Mr Maduro’s cluelessness gives them a chance. He says that he is tackling shortages by raising his own chickens—and so should everyone else.