C&B Notes

Theater of the Absurd

The state of affairs continues to deteriorate in Venezuela as shortages have moved from everyday goods like diapers, detergent and toilet paper to a halting of long distance calls and rolling electricity blackouts. The country is even experiencing a physical currency shortage because it is not making timely payments to its bill printing vendors. Can Venezuela avoid a fate similar to Zimbabwe?

That is putting it mildly. The Venezuelan government spends like Father Christmas after too much eggnog, subsidizing everything from rural homes to rice.  It cannot pay its bills, especially since the oil price collapsed, so it prints money.  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.

M. Mugabe recruited a ragtag militia of “war veterans” to intimidate his opponents.  Chávez recruited gangs from the slums, known as colectivos, to terrorize 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.

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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 dollarization 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.