Lessons from Machiques

This weekend, Hugo Chávez gave nine lessons on how not to handle a country’s economy from his program Aló Presidente number 301 held in the restored Machiques dairy plant in Zulia state.

To begin with, Chávez clearly demonstrated once again that he does not have the least idea that, since December 2, his time a president has an expiry date, that he is not the owner of either the country or of public funds, and that his habit of saying “I’ve paid” when referring to investments by the State is inappropriate and out of place. It seems that he also forgets that it is the Venezuelan people who pay for those investments with their taxes and their share of the oil revenues.

He also made it clear that he has serious difficulties in understanding the fundamental precepts of how a country’s economy functions. This poor knowledge of the subject was revealed when, unable to cope with the unfortunate situation created by the country’s lack of milk production, he took hasty, incomplete, mistaken and dictatorial measures.

First he showed his indignation with the workers in charge of the Machiques Socialist Dairy Plant, berating them because they were preparing to produce cheese and yogurt (profitable lines), and ordered them to process only powdered milk (at a loss), so condemning this recently restored plant to possible bankruptcy.
Then he announced a 36.6% increase in the cost of raw milk on the producer level, from Bs.F.1.10 to Bs.F.1.50.

While at first glance this would seem to be cause for celebration, as prices have been frozen since 2005, the illusion was short lived, as the increase is still insufficient to cover production costs. Moreover, by not authorizing price increases throughout the dairy production chain, he is generating more distortions and is now also forcing the retailer to sell at an even greater loss.

Worse still, he ordered restricting the use of milk to produce items such as yogurt, cheese, and sweetened processed milk, regardless of the fact that these are customary food supplements in the Venezuelan’s diet.
By insisting on maintaining price controls, the President aims, against all economic logic, to force an entire sector of the economy to be neither profitable nor productive. He has not understood that the price control system is collapsing and that it has led to disinvestment, shrinking domestic production, and, therefore, to making shortages endemic.

One detail that illustrates this chaotic situation is the fact that the basic basket products whose prices are regulated, when they can be found, are being sold with a surcharge of 126.3% on average, according to Cendas (Venezuelan Teachers’ Federation Documentation and SocialAnalysisCenter).

To top it all, the President continues resorting to threats, coercion, and attacks on private property to “encourage investment and production.” The best he can think of is to threaten companies that sell milk at above the regulated price or sell it to private processors that produce cheese and other dairy products with expropriation. That’s no way to govern!


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