Q&A on Maduro’s War Against Speculation

David Smilde

Yesterday I talked to several journalists about the events of the past week: the fight against “speculation” in electronics retail, leading to forced liquidation of inventories and in some cases, looting. Here is a quick review of the issues we talked about.

Why is the Maduro government doing this?

The government is fully aware of its declining polling numbers and has good reason to be concerned about the December elections. Of course who wins will not have an actual impact on the national government since these are municipal elections. But this will be the first electoral event since the contested April presidential elections and undoubtedly will be taken as a sort of plebiscite on the Maduro government. Should PSUV candidates fare poorly, it would energize the opposition, further weaken Maduro internally, and increase national and international perceptions that his government is unstable. Since the government is strong in rural areas with lots of municipalities but few people, and the opposition is strong in urban areas with lots of people and fewer municipalities, the government will undoubtedly win the majority of mayoralties. But polling suggests they will likely lose the popular vote, in other words the sum vote totals of all the municipal contests. They want to keep it close. To do so they need people to see them doing something about Venezuela’s economic crisis.

Will it work?

The number one problem challenging the Maduro government is the economy. Maduro inherited an unsustainable economic situation from the Chávez government that needed to be addressed months ago. But internal divisions hamstrung the government and prevented it from taking economic decisions.  Now they are facing a wildly distorted foreign exchange situation, inflation and scarcities. Maduro has tried to frame this as an economic war being carried out against his government. Polling shows that Maduro’s various conspiracy theories only convince between 5 and 20% of the population.

However, I think publicly calling out electronics retailers for overcharging; forcing them to lower their prices and then presiding over a liquidation of inventory puts a name and face on the perpetrators of the “guerra economica.”

Indeed the move resonates in a context in which market discourse has not been naturalized as it is in countries with longer and more robust capitalist traditions. For average Venezuelans, inflation is simply caused by sellers raising their prices. Furthermore, the root assumption of average Venezuelans’ economic thinking is that sellers who raise their prices make more money. There is no default intuition that if you raise prices you sell less and go out of business, or that the way to get prices to decrease is to increase the number of providers so that they compete.

It would be wrong to impute this to some sort of culture of underdevelopment because it actually conforms to reality to a degree that foreigners would have a hard time understanding. Private sector profit margins in Venezuela are staggering by the standards of advanced capitalist countries. This is not because of its great efficiency but because market dynamics in Venezuela are simply not fluid. In most sectors of the economy, collusion and price fixing is standard practice and competition is a fiction.

The idea that inflation and scarcities come from the combination of excess monetary liquidity and a finite supply of dollars being burdened by an overvalued exchange rate is understood by few people anywhere. For most average Venezuelans, an overvalued Bolivar should keep prices low. So seeing a government crackdown on price gouging entrepreneurs makes sense to people. Indeed one journalist told me he was surprised to find that many of the people he interviewed in line were not government supporters, but to varying degrees agreed with these measures.

Nevertheless, public opinion in Venezuela is complicated. The same polls that showed Hugo Chávez with between 50 and 60% support routinely showed that people supported private sector institutions such as banks and shopping malls in even greater numbers. Furthermore, people who frequently opposed many of Chávez’s most radical measures nevertheless supported him. People trusted him and thought he would do right by them. Maduro does not have that same trust.

In sum, these moves put a name and a face on the “economic war” which will increase its interpretive plausibility among some. However, the private sector is more popular in Venezuela than the public sector as well as opposition politicians and that will counteract these moves’ political effectiveness. My best guess would be that the government will receive a bump that will cut its losses in the December elections, but it certainly will not be enough to revive the Chávez majority.

Where will this leave the government next year?

Combatting merchants is clearly a risky strategy when you are already facing an inflationary situation in which there is a lot of money in the economy but not enough things to buy with it. And indeed this will probably mean that within a couple of weeks if not sooner, shelves of electronic stores will be entirely empty. This is certainly an undesirable situation for the average consumer and would seem to provide for an unattractive environment for investment.

But it is important to realize that so far these measures have been restricted to the electronics sector. It may now move towards the automotive sector. But these are higher value, more infrequent purchases that people can put off, unlike, for example, purchases of food. Thus weeks or months of scarcities are less important. Furthermore, people who want to make money tend to let bygones be bygones. If, come January, the government makes a call for “responsible entrepreneurs” to set up electronics retail operations they will do so. Despite the economic dysfunction, there is a lot of money to be made in Venezuela, and there are always entrepreneurs who are willing to assume risk for the sake of profit.

And in a larger sense, while Venezuela’s economic path in recent years does not look sustainable, it is not on the edge of a short-term precipice. The current crisis is largely the result of the government’s own inaction. Their immense resources base means they still have room to take on debt (indeed PDVSA just announced a new $4.5 billion bond emission to ease their dollar crunch). They could sell off some of their gold reserves. They could reduce liquidity through any number of measures. And they can devalue the currency. But all of these measures will either take time to have an impact or are not politically viable just weeks before an electoral event.

Of course such measures require a pragmatic look at economic conditions, and it is not at all clear that those running the economy are pragmatists. Indeed the government’s current “war against speculation” is not so much a change of course as an intensification of planning minister Jorge Giordani’s theory of inflation whereby prices can be kept down by keeping the Bolivar strong and policing prices in the private sector (see Jose Guerra p.112).