The recent visit to T&T by the President of Venezuela should be instructive to the government and people of T&T from the point of view of causation. One cannot dispute that it is imperative that we assist our closest neighbour in her hour of need. One cannot dispute that there are mutual benefits on both sides of the divide in terms of trade and energy in this sordid affair, but there are lessons to be learnt as well.
With respect to economic systems, it should be common knowledge that there exists almost no pure free market or no pure command economies anymore, but permutations and combinations of both types.
Even in the USA which is supposed to be the bastion of free enterprise, government intervenes in the marketplace to regulate free trading, there are many government regulated programmes, ethical issues in business are addressed through government intervention and monopolies are discouraged.
In China, which is by and large a command economy, free enterprise is now being encouraged. In Cuba, we are witnessing some of the past vestiges of socialism being discouraged with a simultaneous movement towards a free market system and in 1989 we witnessed the fall of the Berlin wall which marked the end of the Soviet Union and saw the reunification of Germany.
There is ample evidence, however, that operating a command/socialist economy, where there is big government, leads to shortages of basic goods and services.
When this is accompanied by price fixing, this leads to hoarding and arbitrage, where some unscrupulous individuals buy at a lower price and sell back at a higher price, previously-subsidised goods and services.
A black market then develops, where although prices are higher people still choose to buy because it beats standing in line for hours to buy government subsidised goods, if it is at all available. This, coupled with a failure to diversify the economy away from petroleum, is a typical case of the repeat of the Dutch Disease, in spite of government's good intentions. Any government worth its salt should have uppermost on its agenda 1) economic growth 2) full employment and 3) keeping inflation down to a manageable level. But, also very important is the need to close the gap between the rich and the poor. We in T&T try to achieve this via social assistance programmes, make-work programmes and subsidies.
In fact subsidies account for some 50 per cent of the national budget in T&T. In Venezuela almost all goods and services are subsidised or sold below cost. Subsidies help to keep price down in the short-run but is not sustainable in the medium to long-run. Did you know that Venezuela has the cheapest subsidised gasoline price in the world? Most economists agree that big government interferes with the free enterprise system where the interplay of supply and demand determines price.
The job of government in a mixed economy like ours is to enter the market whenever the price mechanism throws up a price which is too high for the rank and file to afford to restore some balance. It is also claimed that big government leads to bureaucracies with too much red tape, without the necessary metrics/means to measure efficiency. Small government, however, leads to a more efficient and flexible system with lower taxes where smaller businesses can grow and thrive.
Peter Narcis
Chaguanas