Chávez Decaffeinates Venezuela
The late Milton Friedman once quipped that « if you put the federal government in charge of the Sahara Desert, in five years there’d be a shortage of sand. » Friedman was using hyperbole to make a point about central planning. Or so I thought until Hugo Chávez put himself in charge of Venezuela’s coffee sector. Last year, for the first extended period of time in the country’s history, Venezuela did not produce enough of the little red berry to satisfy domestic demand. It has now become a coffee importer and is facing serious shortages.
The collapse of the coffee industry is emblematic of the wider economic catastrophe brewing in the country. For more than a decade Mr. Chávez has employed price controls, capital controls and hyper-regulation in an attempt to meet his socialist goals. When the predictable shortages have arisen, the government has responded by using the salami approach to nationalization, slicing off a bit of the private sector at a time and taking it for the state.
Now the economy is sinking: The International Monetary Fund forecasts that while GDP growth will pick up in most of Latin America this year, it will contract by 2.6% in Venezuela. Core inflation has been running above 30% for two years.
To understand how things got this bad, look at coffee. It was once plentiful in Venezuela. But in 2003, with consumer-price inflation threatening to damage Mr. Chávez’s popularity, the government imposed price controls. That drove down the incentive to grow coffee while increasing the incentive to export to Colombia whatever was grown. Voila! Less coffee for sale in Venezuela.