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Venezuela: The Last Days of Private Enterprise

By: Enrique Standish - Feb 13, 2014, 4:46 pm

EspañolOne does not have to be an expert in finance and economics to realize that within the next few months Venezuela will join Cuba and North Korea as one of the only three countries on the planet where private enterprise does not exist.

Fifty-three years ago, Fidel Castro named Ernesto Guevara, better known as “Che,” as president of the Central Bank of Cuba, with the clear intent to confiscate all private assets and eliminate all private economic activity. It was the first step in the process of sovietization in that Caribbean nation. Now Venezuela’s Nicolas Maduro wants to emulate Fidel, following the advice of his Stalinist planning minister, Jorge Giordani.

Through a myriad of new laws and regulations, the private sector is in the process of dying by asphyxiation, and most companies will begin to cease activities.

The private sector in Venezuela has barely managed to survive in Venezuela after 15 years of the “Chavista regime.” Most of Venezuela’s largest companies, as well as most banks, insurance companies, and agri-business industries were long ago nationalized or confiscated by Hugo Chávez. Now the final death sentence for the remaining businesses has come through new foreign exchange and price control regulations.

The new foreign exchange regulations send a clear signal that the trade debt owed by all importers, who were forced to purchase goods overseas on credit by previous regulations, will not receive foreign exchange and thus will not be able to pay their suppliers. It will not take long for most private companies, both industrial and retail, to either close — since they will have nothing to sell — or to declare bankruptcy on the face of lawsuits from their own suppliers.

These same companies allowed Maduro to stay in power for the last few years, as they kept the country supplied even as they faced lengthy delays in their foreign exchange allocations. Now Maduro has decided to cut-off the hand that kept him fed.

The non-recognition by the government of the private sector’s trade debts will produce a devastating effect on the economy and employment. However, the worst results will come from the new “Law of Fair Prices,” recently enacted by Maduro. It is probably the most absurd economic law ever approved by any parliament in the world. The text was most probably the byproduct of the unbelievable economic ignorance of the biggest charlatan in Maduro’s cabinet: the aforementioned Giordani.

According to this law, no economic activity in any field can be performed in the country without the prior permit from the Orwellian “National Superintendency for the Protection of Socioeconomic Rights.” Thus, if a lawyer wants to open his own firm or a farmer wants to sell from his truck, they will need a permit, even if they have previously registered companies to that effect.

But it gets worse, much worse. The law established one universal maximum profit margin for all business activity in the country: 30 percent. The law’s own text establishes not only what can be considered a “cost” for legal purposes, it establishes a universal 12.5 percent allowance for operating expenses! Also, the law forbids anyone from setting any price without the prior consent of the superintendency.

The penalties for breaking the law go from expropriation of the company to prison terms of several years for the executives. Some companies will manage, through elaborate accounting mechanisms, to comply with the law for a time. However, as they operate in a country with the world’s highest inflation rate, they will eventually go bankrupt.

On reading the text of this legal monstrosity, one initially has the feeling that it is simply the result of unbelievable stupidity and ignorance. However, if one takes into account the Venezuelan government’s lack of reaction while the country’s production abilities disappear, or worse, the lack of interest at the enormous shortages of basic goods that plagues the nation — remember there is even a shortage of toilet paper in Venezuela today — then the logical conclusion is that these regulations were designed with the clear intent to destroy private enterprise. It is one more step forward towards the establishment of a communist totalitarian state.

In a few months, Venezuelan cities will begin to feel like cemeteries, like Cuba’s cities. The few shops that remain open will sell shoes in few sizes and clothes in a couple of colors. Crowds of young men will walk the streets with no apparent occupation, while they wait for the instructions of the local commissar. As in Cuba, there will no longer be any hardware stores, or shops selling sporting goods — while restaurants and bars will become a memory. These will continue to exist, but only for tourists with dollars.

“Che” Guevara must be smiling from his grave.

Enrique Standish Enrique Standish

Real name withheld for safety reasons within Venezuela.