Venezuela's continued attack on free enterprise

By Antonio Herrera-Vailant , written on November 28, 2013

From The News Desk

The quest for a good deal on Christmas shopping has taken on a different and far more sinister meaning in Venezuela these days. Ask Hakim Riffai, a humble merchant in the eastern city of El Tigre.

On the morning of November 15, Riffai had just opened his electronics store when the police arrived bearing a shocking announcement. The long-established practice of pricing goods like air conditioners and plasma screen TVs at the black market rate for US dollars would, they told him, end immediately. Forced to reprice his wares at the official rate – currently, ten times less than the black market yield – Riffai suddenly found himself facing financial ruin.

The video of Riffai's reaction, which has since gone viral among Venezuelan internet users, was heartbreaking. In broken Spanish, the Lebanese immigrant wailed and wept at the injustice of his predicament. “Why now?" he begged. "It never happened before!" Indicating the goods on display, he exclaimed, "I bought at 60,000 Bolívares [Venezuela's currency denomination,] I can’t sell at 6,000!” before he fell sobbing into the arms of his brother.

Riffai is not alone. His fate, along with the fate of thousands of other business owners and merchants across Venezuela, is now at the mercy of the "class warfare" – in the words of the country's Vice-President, Jorge Arreaza – which Venezuela's ruling socialist regime has declared on pretty much anyone who owns or sells private property.

If that sounds like the kind of cruel and desperate measure of an equally cruel and desperate government, it's because it is. Ever since Hugo Chavez, Venezuela's larger than life tyrant, succumbed to cancer last March, the country has lurched from one crisis to another under the guidance of his handpicked successor, Nicolas Maduro.

Inflation has spiraled to 54 per cent, the highest in the Americas. Supermarket shelves are shorn of basic goods like cooking oil and toilet paper. Power outages – including one in September that plunged more than 70 per cent of the country into darkness – are a regular occurrence.

All this is happening in a country that sits atop the world's largest reserves of oil. But don't look to the oil industry to provide a solution. For ideological reasons, Venezuela gives billions of dollars of the stuff away to regime allies, like communist-run Cuba. It also plows further billions of oil revenue into low-impact, high-cost "social missions," designed to win votes for the regime by building sub-par public housing or supplying cheap consumer goods. And in any case, during the fourteen years of Chavez's rule, the national oil company, PDVSA, was purged of its professional management, who were replaced by Chavez loyalists. As a direct result, oil production has declined by more than 25 per cent from the pre-Chavez days.

Public discontent with the situation is threatening to burst into open confrontation. Worryingly for Maduro, who faces critical municipal elections on December 8, he is losing support among the urban poor – the very same constituency assiduously cultivated by Chavez, and traditionally the foundation of what Chavez and his colleagues call the "Bolivarian revolution," named in honor of Latin America's famous "Liberator," Simon Bolivar.

So what do you do when you are facing a poll you stand to lose just a few weeks before Christmas? Maduro's response is two-fold. Firstly, he's blamed the U.S. for everything that's gone wrong (literally everything ­­– he has even accused the CIA of poisoning Chavez.) Secondly, he's ensured that household appliances that would have retailed for, say, 80,000 Bolivars now retail for 8,000. Now that these draconian price controls have been introduced, businessmen cannot hope to make their money back.

The disastrous consequences of this policy are already visible. Several outlets, including those belonging to the nationwide "Daka" electronics store, were looted during November (a number of online videos, like this one and this one, capture the chaos that ensued.) A new trading board formed by Maduro will enshrine the role of the state in purchasing and distributing consumer goods, a move that has panicked the business community. "State importers have shown themselves to be inefficient and we must suppose they will remain this way," said Caracas businessman Juan Socias. "They suffer from corruption, poor management and lack  of planning.”

Unemployment is set to soar among the 4 million Venezuelans who work in the retail sector, since businesses compelled to set prices at the behest of the government will have to cut their overheads elsewhere. "After the shops have been stripped of their stocks, and with no clear rules in place, nobody will invest in this country," fumed a local labor rights advocate, Froilán Barrios. "Jobs can’t be thrown away to satisfy ideological whims.”

Most disturbing of all, Maduro's policies cannot be sustained over the long-term. Opinion is divided as to how much time his regime has – one former confidante of Chavez who loathes Maduro recently told me that he could survive a few months at most – but the factors that have pushed one million educated, entrepreneurial Venezuelans to seek opportunities abroad aren't exactly being addressed.

Much hinges on what happens at the elections on December 8. A dizzying range of scenarios is being excitedly discussed – among them a military coup, a civil war, a poll rigged in Maduro's favor – all of which are gravely pessimistic.

Saddest of all is the realization that the business community, so often a repository of common sense during calamitous times, is being repressed and muzzled at exactly the time it is most needed.