Whenever Venezuela is brought up as an example of failed socialist policies, American socialists immediately claim that the country is not really socialist and that it's problems are due to corruption and the plummet in oil prices rather than socialism. Regardless of other issues, their policies on food prices are pure socialism and should be examined as such.The following is a highly simplified account of actual policies Venezuela practiced and their results. Given Venezuela's hyper-inflation, their real prices are meaningless so I made up some round numbers to illustrate the point.
The government decided that food prices were too high so they went to the grocers and told them, "You are charging $10 for beef. We want you to cut that in half." So the grocers went to the farmers and told them, "We were paying you $7 for beef but now we can only afford to pay you $3". It cost the farmers more than $3 to produce the beef so they either went out of business or started selling beef to unofficial markets. Soon a black market for beef was established but black market beef cost $12.
The government asked the grocers why their shelves were empty and they replied, "There's no beef available. The farmers won't sell it below cost so they've gone out of business." So the government went to some select grocers (meaning friends of officials) and gave them money to buy beef from other countries. Depending on the grocer there were four ways the money was used:
1) The grocer pocketed the money and used some of it to bribe officials to look the other way.
2) The grocer bought foreign beef and sold it to the black market.
3) The grocer bought foreign beef and sold it at $5. The first person through the door was someone from the black market who bought all of it.
4) The grocer bought foreign beef but kept it in a back room and only sold to close friends and family.
The result for all of these is that the shelves remained bare and the only way for the average person to buy beef was on the black market.
This is the inevitable result of well-meaning government officials who try to help people by ignoring markets and setting prices too low. Shelves remain bare and a black market develops. The Soviet Union was notorious for bread lines and for its black market.
Venezuela got a lot worse after this. Because of their hyper-inflation and limited foreign currency reserves, the government couldn't keep subsidizing buying food from other countries so even the black market was affected.
This works the other way, too. The State of New York has very high taxes on cigarettes so there's a thriving black market from people who buy cartons of cigarettes in other states with lower taxes then sell individual cigarettes in New York.
The bottom line is that markets develop around what people will pay for goods and what sellers are willing to sell them for. If the government sets prices too low then the goods vanish from the shelves and move into a black market. If the government sets the price too high then markets will develop to get around the official prices.
And that's why socialism fails.
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