Sunday, 31 August 2014

Maduro's conundrum: more than half a million strong

Shortages became so bad that the Maduro government started to look for a new emergency patch, as usual. It came with the idea of the fingerprint machines to limit the amount of products people can buy...or perhaps it was the fingerprint company that came up with the idea. In any case, the government doesn't deal with the reasons of the shortage economy but tries, once more, to mitigate the consequences of its mess. There is a rumpus about this but it comes mostly from the better off to hard-core opposition lower class in Caracas. A lot of the poor - at least for now, at least that's what I get as input from outside the capital - think the fingerprint thing might be a solution, even if not optimal. There is another group that is completely against the machine and for different reasons: those who work in the black market.
GDP: Venezuela, one of its kind

Shortages have to do with distortions in the supply and demand chain, whether we talk about socialist countries with central planning or a pseudo-socialist country with a mixed economy and full government intervention and harassment of the private sector not in the hands of the revolutionary "elite". In any case, the main reason why shortages exist are price controls that prevent supply and demand forces from working as they should. This reason is further worsened in Venezuela by the collapse in local production. Blogger Francisco Toro will say local production wouldn't collapse if prices were right, even if producers were Chavista functionaries taking over. I am not so sure of that. I can see what is happening to Owen Illinois in Venezuela: they are not that subject to price controls but production is collapsing, the higher echelons now are simply using the company as plundering ground. Besides, state bureaucracy in Venezuela simply puts too many trammels for any productive activity.

In any case: low prices trigger higher demand. This, in turn, entices some groups to hoard goods  for sale at the black market or to be smuggled to neighbouring countries. If the pricing issue were tackled, local production would improve and hoarding would collapse. 

Now, let's imagine the finger print scheme is implemented as announced as the system doesn't collapse totally, as Bruni foresees

A lot of the military profit from smuggling. Because they are the ones trying to prevent smuggling, things shouldn't change so much for them: the military would get a higher share of the smuggling flow, small border smugglers will have to look for other alternatives. Things would definitely change for small independent smugglers and some of them will be out of business. What will happen with the countless illegal vendors, in Venezuela the largest share of "informal workers" (who often live much worse than unemployed in Europe)?

The little ones will see their profits drop. They are the ones you see queuing up with their families in front of supermarkets everywhere in the city to buy as much as they can and resell for a living at 4, 5, 10 times the price of the product. According to official figures from 2012, more than half a million people work as illegal street vendors, in Venezuelan Spanish "buhoneros". My educated guess is that today over 1.000.000 people live off from selling things on the streets. A good chunk of those things they sell are goods you will need to show your finger print to get.

Then there are the bigger fish: those who have developed  mafia networks and work directly with supermarket workers to get products by large lots and who sell those products to the small street vendors. It will be interesting to see what happens with them.

My guess now is that a new level of corruption will appear within the system so that the big fish keep getting their lots.

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