There is a point to the study of history. For as George Santayana said, those who fail to study it are doomed to repeat it. The point therefore being to find out which things people tried in the past, which of those things didn’t work and then not do them. It’s this part of the process that President Maduro and his merry band in Venezuela seem to have missed. For they’ve just decided to start down, or perhaps continue down the path given their past actions, of one of the greatest mistakes made by the Soviet Union. That is, the nationalization of the food distribution system.
It’s entirely true that markets do not solve every problem: they’re unlikely to make Mom’s apple pie taste any better or worse for example. But one area where they really do work very well is in that distribution of food from the farmer to the consumer. And there’s absolutely no non-market method ever tried, or at least none that’s survived into recorded history, that has been successful. Even Ancient Rome’s grain dole was a byword for corruption and inefficiency. Making this little announcement from Venezuela somewhat worrying for the benighted inhabitants of that country:
Venezuela’s embattled government has taken the drastic step of forcing food producers to sell their produce to the state, in a bid to counter the ever-worsening shortages.
Farmers and manufacturers who produce milk, pasta, oil, rice, sugar and flour have been told to supply between 30 per cent and 100 per cent of their products to the state stores.
It simply is not going to work. My predicted outcome from this is that Venezuela is now one harvest away from serious starvation.
There’s two ways that the state could determine the prices to be paid to the farmers who do supply those subsidised stores. The first is that they pay the market price and pay for the subsidy at the store level. This would mean having to give real money to the farmers: and who thinks that is all that likely? The second is to determine the price the farmers will be paid and include some of the subsidy in that. That is, paying the farmers less than the market price for their crops.
That first method might seem OK on paper although we all know that they’re not really going to do that. But even if they do the country has something like 200% inflation. So even the mildest of “bureaucratic delays” in processing payment is going to mean those farmers getting very much less than the market price. And of course the second method means they will obviously be getting less than the market price.
And the thing about prices in markets is that they work. There’s a certain number of people willing to supply any one item at any one price. There’s a certain number of people who will demand something at any one price. Prices change until we reach equilibrium, where all the demand at that price is satisfied by supply at that price. Then, if you start to change the price you upset that equilibrium. If you set the price lower than that market clearing price you will create, as they have done, shortages. Simply because fewer people are willing to do the work to supply at that price yet more people are willing to consume at it.
There is no way out of this: price fixing below the market clearing price leads to shortages. There are no known exemptions to this law.
So, farmers and manufacturers must supply the state stores. Either they will be, if we are to make a little prediction about this, paid late and in devalued bolivars or the prices they get will be below market in the first instance. Either way means that once they’ve had their current crop or production run appropriated they won’t bother to produce the next one. Result? Real, serious, shortages of food.
Which brings us back to the very basic mistake that Chavez made and Maduro is continuing with. It’s a mistake that pervades much of the European left too. This idea that markets don’t work. There’s nothing wrong at all with deciding that you’d like the poor of society to have a better shake, a larger share in the wealth. It’s an aim I share in fact. But it does matter how you do this. Messing with markets, trying to fix prices, just doesn’t work. What should have been done is to take some of that oil money, or maybe even tax the rich a bit more, and then give that money to the poor. I’m not saying that I suggest this policy: only that if getting the poor richer is your aim then that’s the way you’ve got to do it.
Which brings us back to Santayana. The point of this history stuff is to see what didn’t work and then not repeat it. Yet Maduro appears to be selecting the very worst public policies of the past as those that he will impose today. Confiscating the food off the farmers is just going to lead to no farmers and no food.
Someone really should tell the President about 1930s Ukraine.