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Socialism’s Pathological Scarcity: A Never-Ending Tale

By: Efraín Salazar - @efrainjsp - Feb 13, 2014, 10:46 am

EspañolWhy do the economies of socialist states fail? Why have countries like Cuba and Venezuela experienced periods of severe scarcity? Is it a conspiracy of big capitalists to end the “revolution”?

This is, in fact, the oft-repeated rhetoric of collectivists of various stripes worldwide. Some argue, for example, that the immense poverty of Cuba is a function of the so-called blockade by the United States.

However, the truth is that poverty is a product of the onerous mandates and economic planning that is characteristic of socialist countries. That is why in countries such as Venezuela — which at one time experienced an economic bonanza like few countries have in history — people now kill each other in supermarkets over a kilo of flour.

The problem with the concept of economic planning is the underlying fallacy that the economy is controllable — that a central, government agency can coordinate the investment of various assets in a country and improve its productivity. The idea of simply improving decision-making in economic matters, through consolidation of information and resources, is extremely tempting for any ruler — one that none manage to escape.

However, as the saying goes, “the road to hell is paved with good intentions.”

Consider the example of Cuba and its fully controlled economy. Since 1960, Cuba has arranged a massive nationalization of all industries and financial institutions. During the Cuban Revolution, Fidel Castro, and especially Ernesto Guevara, were convinced that the central planning of the Cuban economy would build a new society. Still, Ernesto Guevara is the most influential socialist of Latin America, because of his guerrilla exploits and romanticized economic ideals.

Guevara’s primary goal was to use the income garnered from the sugar industry as a way to boost the country’s entire economy. As director of Cuba’s Central Bank, he nationalized all industries and redistributed resources across the market. In theory, Guevara’s economic planning was meant to not just improve the economic development of Cuba, but lead to the creation of a “new man,” incentivize volunteer work, and encourage collective participation. (Of course, any resemblance of Guevara to a certain character within the Venezuelan government is mere coincidence.)

The results of Guevera’s economic meddling were, in the end, such a disaster that even Guevara himself hated his role in government. In 1962, Cuba introduced the infamous ration card, placing price and quantity controls on food and immediately causing shortages. After the fall of the Soviet Union in 1991, the situation in Cuba only worsened.

Even still, the country did not abandon its central economic planning. Every five years, new five-year plans were created — once again proving the highly addictive nature of economic control to a government. Even when their economic planning failed, the Cuban government still had the perfect scapegoat to blame: the United States.

It should be noted that there hasn’t actually been a “blockade” around Cuba since the US navy left the island in 1962. There has, however, been a limited embargo which to this today impedes US Americans from doing business with Cuba. The embargo is meant to put pressure on the Cuban government to enact reforms, democratize, and demonstrate a respect for human rights.

Even with the embargo, however, the United States does not prevent other countries from trading or conducting business with Cuba. In fact, since 1995, Cuba has been a part of the World Trade Organization (WTO), and the island receives 6.6 percent of its imports from the United States in the form of humanitarian aid.

In short, only the Cuban government and its poor economic vision can be blamed for the country’s stunted commercial growth.

With Venezuela, however, we have a different story — and to call the National Simón Bolívar Project and the Homeland Program “plans” for the economy is absurd. They are, in truth, nothing more than collections of fine words and clichés without any tangible goals.

The history of the Bolivarian Revolution is in actuality a story of control. The flowery words within the tale attempt to mask the true purpose of the “revolution” — total domination by the state in every aspect of the economy.

Through oil revenue, the Bolivarian Revolution uses its access to dollars as a way to suppress the foreign exchange of currency and limit the free market. In fact, the most powerful means of control that exists in Venezuela today is in its currency restraints.

The Venezuelan economy suffers from Dutch disease: the wealth of resources in the country allows for an artificial currency exchange rate, and consequently, it is much cheaper to import than to produce.

The government of Venezuela maintains a monopoly on the supply of dollars, and since not enough dollars are ever sold, companies are left with their hands full of bolívares — which are worthless outside the country. The inevitable result is scarcity.

As in Cuba, the blame cannot be placed on the “empire,” the “parasitic bourgeoisie,” or “economic warfare.” The Venezuelan government and their quest to intervene and control the economy is ultimately to blame.

Central economic planning causes such disruption to the market that the result will always be scarcity, along with more and more regulation — a classic “slippery slope.” Of course, this debate is not new, and the clash between intervention and free market practices goes back as far as economics itself. In this case, we must turn to history to settle the argument.

Incredibly, there still remain socialists who will defend the failures of their doctrine, even in cases like the Soviet Union — it wasn’t “real” socialism — or Cuba — the “unfair” US embargo! Even more incredible, however, is that there remain leaders in government who refuse to accept their mistakes, blame others for their failures, and people still believe their stories.

Translated by Isabella Loaiza Saa.

Efraín Salazar Efraín Salazar

Efraín is from Caracas, Venezuela. He is an investment and market analyst, and a political-science graduate of the Central University of Venezuela. He is pursuing an MBA at the University of North Carolina, Chapel Hill. Follow on Twitter @efrainjsp.