Government Intervention in the Markets and Economy of Venezuela

Government Intervention in the Markets and Economy of Venezuela

The intervention of government in the free market can be detrimental to any country during most times. The interventions’ results are realized because they respond to political pressure, which leads to wrong decisions. The government spends financial resources on projects that are most popular among the other members. These investments result in inefficiency because the outcomes are not beneficial to the citizens. In addition, the intervention of the government introduces inefficiencies in the market (Pettinger, 2020).

For instance, Hugo Chavez, who became the Venezuelan president in 1999, introduced policies that were meant to reduce inequality. The socialist policies backfired because they reduced market efficiencies. The price controls were intended to ensure that all citizens could afford the basic goods. The price controls led to the capping of flour, rice, cooking oil, as well as toiletries. The controls made production for most local firms difficult due to a lack of profits. Instead of achieving the intended goal, the price controls led to a shortage and affected the local economy negatively (BBC, 2021).

Furthermore, the loosening of the controls on foreign currency in 2003 led to a different kind of problem in Venezuela. The action enabled traders to deal with the new shortages that resulted from price controls. As traders sold their goods in dollars, the products became unaffordable for the poor. Those lacking US currency had difficulties accessing basic commodities (Pettinger, 2020).

As observed in the case of the Venezuelan government, the interventions by the government do not always produce positive results. Few achieve the intended goal and tend to create inefficiencies that affect the most vulnerable members of the population. Furthermore, they affect parties that contribute to the local economies significantly.

References

BBC. (2021). Venezuela crisis: How the political situation escalated. BBC News.

Pettinger, T. (2020). Should the government intervene in the economy?

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Respond to the following in a minimum of 175 words:

Can government intervention in markets sometimes make the situation worse? Provide examples in your response. For example, consider the progress of the economy of Venezuela since 2000.