But what if….

Soldiers were ordered to take control of the rice mills, which include installations owned by US food giant Cargill.

Mr Chavez accused the companies of disrupting the supply chain by refusing to produce rice at prices set by the government.

The price set by the government were the wrong prices?

Actually, this opens up an interesting little area for discussion. Leave aside the purist idea that there should be no subsidisation for a moment and look at what types of subsidy you can in fact offer.

One is as I assume has been done here. To set prices and to deliberately set them so that some part of the production chain has to make a loss so as to reduce the price to the consumer. Bashing the big companies in order to get cheap food to the consumer always gets cheers from the populace.

However, what will happen is that those being forced to take the loss if they produce at these prices will stop producing so there is, rather than cheap rice, no rice. Thus the nationalisation of those plants at that stage of the production line.

After nationalisation of course that very same loss will now have to be eaten by the taxpayers. For the loss is still there in that production chain.

It would be simpler and cheaper just to offer a subsidy to the rice millers in the first place to cover for the losses they are being forced to make by producing at the set prices. But there\’s a political problem with that: that can be portrayed as subsidising the large corporations despite the fact that it\’s an economically equal method of getting to the desired goal….cheap rice for the masses.

Add to this the fact that nationalisation is inefficient in itself, moving yet another part of the economy under the crony rule of the bureaucrats currently in favour and we see that the political imperatives of populism lead to bad economic decisions.

As I say, leave aside the purist point that there should be no subsidies at all….if you are going to have them there are good and bad ways of implementing them and Chavez, as is his wont, has chosen one of the bad ways.

4 comments on “But what if….

  1. The Government could buy the rice wholesale at market prices and distribute it a price it deems acceptable. Same problem with supporting big companies and defining market prices though. Plus the impostion of an inefficient distribution system.

  2. Surely any losses at the mills due to set prices are offset by having a larger workforce in the form of soldiers, which the mills don’t have to pay for.

    Tim, you can’t claim elsewhere that jobs are a cost to a business if you don’t count free labour as a benefit.

  3. The state should subsidize the consumer directly, in cash.

    Cuz’ when I get my subsidy I ain’t buyin’ any steenking rice, it’s beer, pizza and lottery tickets for me.

  4. I like Chris’s point, although it does rely on the assumption that being a soldier is otherwise an entirely pointless job that provides the country with no benefits.

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