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Editorial Commentary
Investors's Business Daily:
Hugo's all-too-predictable shortages
Economics: The blackout that engulfed most of Venezuela Monday was dismissed as just a technical glitch. But amid the state's takeover of the country's industries, it's not an aberration. It's a signature shortage of socialism.
It happened suddenly in Caracas, and across the country at 3:59 p.m. A hydroelectric station somewhere blew out, and along with a failure of a backup system and a jungle fire, the entire electrical grid in the capital and other cities went down. It knocked out the Caracas subway, made cell phones unusable, cut traffic lights, forced hospitals to turn on emergency generators, trapped people for hours in high-rise elevators and left thousands stranded.
In Caracas, thousands waited in cars for hours. Thousands more had to trudge for hours to distant shantytowns up steep hillsides to make it home. In several cities, crime had a field day.Such a blackout might not mean much in a place like Cuba, whose capital has been a trash heap since Castro's dictatorship began in 1959. It also might not mean much in Colombia, where a war against Marxist terrorists since 1966 has meant frequent power sabotage.
But it does mean something in Venezuela, not only because it's been a richer and better-developed country than the other two, but because it's rarely suffered outages until now. No one thinks it'll be the last.
What gives? Unlike Cuba or Colombia, Venezuela is nationalizing its industries now. Cuba has nothing left to nationalize; Colombia is privatizing.
Venezuela's strongman, Hugo Chavez, nationalized the power company, Electricidad de Caracas, in early 2007, then owned by Arlington, Va.-based AES. Chavez dictated that AES would be paid just 50 cents on every dollar it sank into the company since 2000. AES had no choice. It took the $800 million and an earnings hit.
"We're moving toward a socialist republic of Venezuela," Chavez said. "Now electricity is for all, the thing that had been out of reach."
But far from electricity for all, there are now shortages — the same kind hitting other industries Chavez has meddled in.
Businesses have been confiscated across the board in Venezuela, amounting to a nationalization of much of the economy. Chavez has taken cattle ranches, sugar farms, steel companies, cement companies, oil companies, ketchup and soda factories, apartment buildings, phone companies, and TV stations, handing many over to the control of his cronies. His government's excuses for the theft have ranged from lack of title deed, idleness, hoarding, strategic value, ownership by the wrong race (read: white) and, in the case of RCTV, the station Chavez shut down last year, "coup-plotting."
Price controls have eliminated all incentive for farms to produce more. As a result, there's little meat, milk, coffee, eggs, or salt in Venezuelan shops. Import and currency controls have kept needed goods like capital machinery and spare parts out of reach for many businesses, which are now going fallow.
That hits the entire economy. Tires, toothpaste, batteries and other necessities of modern life are getting hard to come by in Chavez's Venezuela. Don't even think about job creation.
It all amounts to state intervention in an economy, and its result is to turn once-productive private enterprises into inefficient state-run ones, answerable to no market, wasting capital, and run by state employees whose loyalties are strictly political.
Chavez blames the U.S., his state TV stations citing "yanqui sabotage" for the power outage that hit Caracas this week.
He's tried to blame food shortages in Venezuela on the U.S., saying they're due to U.S. production of ethanol. But with Venezuela taking $100 billion in oil earnings, and the shortages going well beyond food but to other things as well, it's obvious the excuses don't wash.
In reality, investment has fled and it's getting obvious. Once-sparkling Caracas now looks rundown. Farmers in central Yaracuy state tell us they've let their farms get dilapidated and their business offices get encircled with weeds to make them less attractive to the confiscating hand of the state.
In 2007, Venezuelan foreign investment fell to less than half a billion dollars. That's the impact of confiscations. Meanwhile, neighboring Colombia's foreign investment, by contrast, soared to $9 billion. The lesson in this is the more an economy opens itself to the private sector and the outside world, the more investment it gains.
Chavez's nationalizations have been a failure. They haven't spread the wealth, as promised, but instead have served up the same across-the-board shortages known in every socialist regime.
Investors's Business Daily is a well known U.S. publication for investors and business comunity. Petroleumworld does not necessarily share these views.
Editor's Note: This commentary was originally published by VenEconomy, on 04/28/2007. Petroleumworld reprint this article in the interest of our readers.
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Petroleumworld News 05/02/08
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