When too much state equals not enough milk

Despite the results of the referendum in which Venezuelans rejected President Chávez’s attempt to strengthen his constitutional grip over the economy and public institutions, the de facto government takeover goes on unfettered. The New York Times reports:

Faced with shortages of foods, building materials and other staples, President Hugo Chávez is intensifying state control of the Venezuelan economy through a new wave of takeovers of private companies and the creation of government-controlled ventures with allies like Cuba and Iran.

According to the government’s rhetoric, those steps are necessary to advance the vision of the 21st century socialism promising prosperity for all. But this lofty goal is foundering on the shoals of rampant inflation and shortages of basic consumer goods. And it’s not the end of economic woes: foreign investors, wary of potential expropriations, have increasingly been staying away from the Venezuelan market.

Outside investment dropped to just $500 million in 2007. In contrast, Peru, with a population comparable to Venezuela’s 27 million, received $5.4 billion in foreign investment last year.

The ongoing nationalizations only validate investors’ fears. They also do little to diversify Venezuela’s oil-dependent economy and there is no clear indication that the President has a sustainable long-term plan to make it perform better. Rather, the government’s policies struggle to put out flares of popular discontent with the current state of the economy through the means that look an awful lot like central planning:

Protests broke out this year in parts of Venezuela over food shortages and climbing food costs, including one disturbance in Sabaneta, Mr. Chávez’s impoverished home city. … Stung by criticism over milk scarcity, the government eased price controls for milk and recently took over a large dairy concern, Lácteos Los Andes, directing it to reduce yogurt production and raise milk output.

With the National Assembly, Supreme Court, federal bureaucracy and most state governments already controlled by Mr. Chávez’s followers, there is little hope for a constructive debate over how such dubious policies, unsuccessfully tried from Bolshevik Russia to China under Mao, are going to increase productivity and the supply of food. But if, as some Venezuelans say, the goal is “to annihilate the productive apparatus so that we depend more on petroleum income, which is to depend more on the state, or in other words, to depend more on Chávez,” then it’s well underway.