A tale of two countries: Venezuela’s experience with socialism has very important lessons for India

February 24, 2021 7:00 AM

Subsidies—and not free markets—incentivised hoarding and shortages. Inevitably, government officials hoarded themselves and asked for bribes, resulting in black marketing, rationing and violence.

Farm reforms are the need of the hour, as the then finance minister Manmohan Singh remarked in 1991, ‘no one can stop an idea whose time has come.’

By Ritvik Chaturvedi

Despite explanations offered by the Prime Minister and even the IMF Chief Economist, the manufactured tussle between farmers and the Centre shows no signs of abating, nor does the oft-repeated argument that the farm laws are going to open our agricultural sector to the corporations and that these ‘big-fat-greedy-capitalist-imperialist-pigs’ will eat our farmers alive. Protestors on my university campus too play the same refrain ad nauseam. This will happen, they argue, by corporations having an iron control over supply chains, bereft of farmers, thereby causing artificial shortages and inflation. This is nothing but a complete fallacy.

When was the last time Amazon refused to sell oranges to cause artificial shortages and, thereby, inflation? Amazon knows that should that happen, consumers will simply turn to another source (BigBasket or just the local bazaar). Upon resuming business, they will still have to sell oranges at the market rate, just like everyone else. Neither will Apple hoard the latest iPhone because Samsung and Motorola will create something more advanced in another six months, making the current iPhone model redundant. Shortages and shortage-induced inflations have historically happened not when there are multiple channels of production-distribution, but when there is just one.

Besides, hoarding food, a perishable commodity, will lead to the depreciation of the very product for which they have made those investments. This does not make sense, especially when they will have to pay their monthly electricity bills and their employees’ salaries. Will you pay Rs 10 for a paracetamol tablet that expires in six months from now, or Rs 30 for that which is expiring in one month? Rs 10 for a fresh tomato or Rs 30 for a six-month old one from cold storages? Compelled to sell one’s products at the right time, no agritech company would strain their storages unnecessarily.

If private players have to be avoided come what may, and the state should control all goods and services, then why only stop at the collection and distribution of food? Why not extend these practices to the very production of agricultural commodities? Let us then go back to Stalin’s Collectivisation and abolish private property overnight, redistributing landholdings equally. And why only agriculture?

If state control is indeed such a panacea for economic growth, then why not allow the government to tightly control every sector of the economy: from clothing to electronics! Practices like these, when implemented, wreaked havoc in countries as geographically dissimilar as the USSR and Tanzania. People simply lost the incentive to invest and produce, causing acute shortages.

Should the suggestions of protestors (for example, continuation of minimum support price, state-control of collection and distribution of produce) be brought to fruition, it won’t be the first time in global economic history that this happens. These ideas have been implemented in socialist countries to disastrous effects throughout the world (the USSR, Cuba and East Germany, to name a few). Quite recently, Venezuela, once the richest Latin American country and home to the largest oil reserves in the world, adopted a socialist-centralised economy and went from riches to rags in less than 15 years.

Venezuelan leader Hugo Chavez echoed the sentiments of our anti-farm law protestors. ‘Venezuela is a nation of great wealth, but it’s being stolen from its citizens by evil capitalists and corporations.’ Like our anti-farm law protestors, Chavez too received massive support from Hollywood celebrities.

During his regime, he completely eliminated private players and nationalised agriculture, electricity, water, healthcare, telecommunications, finance—everything. He summarily dismissed the few multinational oil and gas companies that were then bringing in precious foreign direct investment (FDI), and took the oil sector completely under the state’s wings.

Like our MSP, these nationalised entities were funded by taxpayer’s money—until, of course, the Venezuelan government simply ran out of money they could confiscate. Venezuela’s nationalised industries, including the state-owned oil company, being the only players in the ‘market’, continued guzzling money coming from foreign aid (Venezuela’s public debt was about $150 billion by 2018) and oil exports (contributing 95% to the country’s revenue in 2012), while giving zilch results and incurring losses. With private enterprise missing, Venezuela was not exporting anything else either. Plummeting oil prices in June 2014 and the creditors’ refusal to lend Venezuelans any more money dealt the final blow.

Subsidies—and not free markets—incentivised hoarding and shortages. Inevitably, government officials hoarded themselves and asked for bribes, resulting in black marketing, rationing and violence. The state-owned shops simply pocketed their stipulated monthly government pay cheques.

This bears an uncanny resemblance to India: It is the government public distribution system (PDS) that has been caught hoarding, by UPA-2’s ex-finance minister P Chidambaram himself (‘Hoarding government, starving people,’ The Indian Express, 26 Apr 2020). His party even promised repealing the APMC Act in their 2019 Lok Sabha Election manifesto. Verghese Kurien had similar observations to make when asked to oversee Delhi, Bombay and Calcutta Milk Schemes in 1960s, and remarked ‘the subsidies have to stop, first of all.’

Agricultural production in Venezuela shrank by 75% even as the population grew by 33% in less than 20 years. Infant mortality rates were as high as 50%; as the government scrambled to somehow import the basic necessities of food, milk, medicines, toothpastes and rice. The government sought to wriggle out by just printing more money, and inflation reached 13,000%, causing more than 25% people to flee the country.

Chavez, while taking on presidentship of Venezuela in 1999, had screamed ‘socialism or death!’ Luckily for him, he did not live to see that he had successfully delivered on both. India does not have a choice. Recently, Venezuela and Cuba—another country that contributed massively to Venezuela’s economic collapse—took feeble steps to relinquish state control of companies to private investors. Ironically, in India, it is the government that wants to give up state control, and the people seem to not want it! Farm reforms are the need of the hour, as the then finance minister Manmohan Singh remarked in 1991, ‘no one can stop an idea whose time has come.’

The author is with the Indian Institute of Science (IISc), Bengaluru

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