Caracas Chronicles

Original drawing by Audrey D’Acosta

I see it every day on my way to work. A supermarket queue, impossibly long, starting before dawn, is cut off by a feudal caravan: a brand-new Toyota 4Runner, no plates, thick black-tinted windows, flanked by three motorbikes, escoltas conspicuously flashing their handguns as they cut through the mass of hungry villagers. It’s no coincidence that the guy in the SUV happens to be hanging around the market, close to the army of bachaqueros standing in line for price-controlled goods to flip. That’s the ringmaster, putting some order in la pea.

Price controls are nothing new, but this administration has pushed them to absolutely crazy extremes.

Welcome to Bachaquero Nation.

For seventeen years, the government has relied on price controls as the cornerstone of its uber-populist brand of “economic” policy.  The two inflection points in our country’s descent into the economic void are easy to spot: the launch of price controls on foreign currency (CADIVI) in 2003, and their extension to everything else via the Ley de Costos y Precios Justos in 2011. The first signaled the installment of financial bachaqueo, the second one, of ‘real economy’ bachaqueo. Whether white- or blue-collar, each sphere is bound by the same rules and a rigid, mob-like hierarchy.

Price controls are nothing new, but this administration has pushed them to absolutely crazy extremes.

The end results of a decade of this speak for themselves: our country is bankrupt, for all intents and purposes. Venezuela is enduring the worst recession in recorded history Some of the most vulnerable people in the country are literally starving, and our government refuses to let anyone come in to try to redeem its criminal negligence. But how did this happen?

The bachaqueo ‘death cycle’

The sanitized version —the way we economists are trained to talk about these things— is that bachaqueros extract excess rent from price differentials. The rent comes from either the private sector (companies forced to sell at an economic loss, depleting its working capital in the process), or the public sector (the government satisfying the excess aggregate demand with imports, depleting International Reserves and amassing External Debt). The bigger the price differentials, and the more widespread the controls, the bigger the bachaquero margins as a share of the economy, and also the bigger is the strain on those who bankroll the margins: you and me.

Our country is being sucked dry by bachaqueros. One day we’ll have the data to come up with the exact figures, but (at least to me) there’s no doubt that bachaqueo has led to a permanent lower level of social welfare by the destruction of potential output and the persistence of external outflows it generates. If you don’t believe me, just ask Carlos Hernandez how it feels living through the bachaquero death cycle.

Evil

All of that is right, but incomplete. Price controls — especially the deliberately sloppy kind of price controls that have been applied here — create evil incentives. And I don’t mean “dysfunctional” or “counterproductive” or any other sanitized euphemism that takes the moral component out of it. I mean evil.

In our upside-down bachaquero economy, nobody wants to produce at prices that are completely disconnected from fundamentals. Instead, everybody tries to engage in the wants to arbitrage: buy low on the regulated market, sell high on the parallel market. It doesn’t matter if it’s dollars, diapers, or detergent we’re talking about: anything that can be flipped for a quick negocio is fair game. Everybody wants to get richer doing things that make society collectively poorer. A system that pushes the everyone to act in ways that make us all poorer isn’t just technically unsound, it’s evil.

We should be clear on this, though: the problem isn’t the people who bachaqueate.  They’re just self-interested individuals like the rest of us: they see an opportunity, weigh up the alternative uses of their time, and seize it.

It’s the system they’ve created that’s evil. It’s the thugs who enforce those price controls who are evil.

Scapegoating small fry bachaqueros for doing what they can to scratch out a living in an insane system is to miss the point completely. That the government that pushed them into this corner attacks them, calling miserable individuals that preying on the needs of the pueblo; a beacon of dirty, savage, criminal capitalism; a Judas that deserves to be set on fire, is just the latest sign of its moral disorientation.

It’s the system they’ve created that’s evil. It’s the thugs who enforce those price controls who are evil.

We know the technical upshot: an economy is shrinking by double digits, with regular folk suffering its effect every day, but where the top-tier bachaquero remains king. They don’t seem to care about the fact that their arbitraging is destroying their cash cow in the process.

Play out this dynamic to the bitter end and what you get is what we’re seeing today in Caracas. The days of Cadivismo and cheap, seemingly-endless dollars are gone and will never come back. The productive economy has turned into a queue-based economy, with easily half of the Economically Active Population stranded in a cola for regulated goods at any given day. SITME guiseros (like the high school bully we covered in our #CadiviDiaries special), once the kings of the hill, have had to downgrade their business and have resorted to bachaqueating sacks of Harina Pan and toilet paper: that’s all that’s left for them to flip.

The new rent-seeking hierarchy is led by the luxury goods boutiques that have spawned everywhere in the city as a sort of ‘high-end bachaquerismo’, offering imported goods at international prices. Its only customers? Bachaqueros, you betcha.

It’s amazing that the people who implanted this system have the gall to complain about vulture funds. 

Just as the pie is shrinking fast, the number of people looking for a piece is skyrocketing: the predictable result of decimating whole industries with price controls. A handful of people that oversee the flow of regulated goods are making themselves filthy rich still; you can recognize them by the malandro in Louis Vuitton looks and the plateless Toyota 4Runner SUVs with motorcycle bodyguards running around the city like they own it.

In the end, they do.