In September 2013 the Guardian wrestled with a mystery. “‘No one can explain why a rich country has no food’ Toilet paper, rice and coffee have long been missing from stores, as Venezuelan president blames CIA plot for chronic shortages.”
Actually, an economist named Brad Schiller tried to explain it in March of the same year. He said the shortages were the result of Hugo Chavez’s war against the Law of Supply and Demand. Writing in the Los Angeles Times Schiller wrote: “two years before his death, Hugo Chavez tried to repeal the law of supply and demand … Chavez despised the law because he believed it robbed the poor and unjustly profited producers.”
In its place, he persuaded the Venezuelan legislature to enact the 2011 Law on Fair Costs and Prices, a price-setting mechanism to ensure greater social justice. A newly created National Superintendency of Fair Costs and Prices was empowered to establish fair prices at both the wholesale and retail levels. More than 500,000 price edicts have been issued. Companies that violate these price controls are subject to fines, seizures and expropriation.
Not that he had any good experience with price controls. Chavez had been draining the state-owned Venezuelan oil industry for years using the same methods of price controls. “The most flagrant subsidy is for gasoline. Venezuelans pay only 4 to 6 cents per gallon for gasoline, the cheapest in the world. But it costs Petroleos de Venezuela, the government-owned oil company, close to $2 a gallon to extract, refine and distribute it. With domestic consumption now running about 600,000 barrels a day, the financial loss on subsidized oil is roughly $20 billion a year.”
The result was the ruin of the Venezuelan oil industry and the flight of its petroleum engineers to Canada. But undaunted by this sad experience the Chavistas waged an ever more relentless war on Supply and Demand everywhere they could find it.
The sheer destructiveness of these measures can be told in the story of coffee. Venezuela was once the largest coffee producer in the world but in 2004 it imported coffee for the first time from Brazil. By 2012 Venezuela was importing 43,000 metric tons from abroad. Today the movement of coffee beans is attended with the care accorded to shipments of gold bullion, under the watchful eye of SADA. “With SADA, any significant transport of food items anywhere in Venezuela must be declared. The truck, the merchandise, the driver, the dates of delivery, everything must be recorded previously if you want to make a delivery.”
With this fund of experience under their belts, the Chavista government is now convinced that the key to controlling prices lies in regulating consumption even more closely. As the Guardian explains: “battling food shortages, the Venezuelan government is rolling out a new ID system that is either a grocery loyalty card with extra muscle or the most dramatic step yet towards rationing in Venezuela, depending on who is describing it.”