Venezuela Campaign: Shortages are a feature, not a bug of the system
Despite a near-total economic collapse and against expectations, the Chavista regime in Venezuela endures. How so? In a centrally planned economy, the ruling class can use goods in short supply as a political instrument of control. In Soviet times, party members could get access to special shops where they could buy goods unobtainable elsewhere. The same is true of Chavista Venezuela, where elites benefit from the profusion of shortages. This principle is ingrained in the Venezuelan system so deeply that even currency is subject to the same manipulation and control.
However, shortages only work as a political tool when goods remain available. When Chavista managers control a nationalised factory, they can sell goods at high prices on the black market and generate extra personal income. But this is only possible while factories remain in operation. Now most Venezuelan factories lie idle, shutting off a vital source of patronage for the regime. For example, in 2010 Hugo Chavez expropriated the steel company Sidetur and handed over control of its facilities to the military. At one facility, the Barquisimeto Steel Mill, production declined until reaching 7.5% of installed capacity in September 2015, at which point it closed. The company’s other six plants have also been shut and the workers sent home. While steel was in short supply the military managers could sell scarce stock for profit on the black market. Now the plants are shut they get nothing at all, a worrying concern for a regime that needs to keep its military onside.
The regime also uses petrol smuggling to channel money to its military supporters. Petrol is almost free in Venezuela, conservatively it may be as little as $0.01 per litre, although due to the ongoing devaluation of the Venezuelan bolivar it is probably much less. However, it is almost impossible to find petrol in Venezuela, there are great shortages of petrol and one often has to queue for days. One of the primary reasons for the shortages is that vast quantities of petrol are smuggled out of Venezuela to Colombia or the Caribbean, where petrol sells for 3,700 times more than in Venezuela. This smuggling is run by gangs either controlled by or in partnership with the military. The value of the fuel smuggling business is estimated at $18 billion per annum, and a good chunk of this ends up in the hands of Venezuelan military officers.
Food shortages have provided similar opportunities for elite control and corruption. Members of the population who acquiesced to regime control were given access to subsided food boxes through “Local Supply and Production Committees” (CLAP). But the scheme itself was exploited corruptly by the Chavistas running it, as described by Alonso Israel Lira Sala, Mexico’s Deputy Attorney General, who investigated the corruption at the Mexican end. He said their approach was to “acquire low-quality products, export them to Venezuela at marked-up prices, resell them through the CLAP to the Venezuelan population at 112% more than the real cost”.
Moreover, once in Venezuela, some of this low quality corruptly acquired food is then smuggled by the distributors to neighbouring countries where it is sold at market prices, netting a hefty profit for the smugglers. But as the funds available to the regime decline in tandem with the continuing collapse of the country’s oil industry, the ability of regime insiders to make much money from food shortages is also diminishing. Petrol smuggling is also decreasing due to the petrol shortages caused by the collapse of oil production and refineries as a result of inadequate investment and maintenance.
This leaves the regime with two means of paying off its military support base – asset sales and drug smuggling. Most realisable assets, such as gold reserves, have already been sold. Drug smuggling, on the other hand, is booming. A recent investigation estimated that 240 metric tons of cocaine were shipped through Venezuela to western markets in 2018, and detailed how the smuggling is run by the Venezuelan military. But is it raising enough money to enable Maduro to keep his regime running?
More information on the Venezuela Campaign can be found on their website.