With this announcement, Chavez basically halts all foreign manufacturing in his country. If he successfully takes over Cargill’s operations, many other countries and business will not set up shop for fear that turning a profit will put them at the short end of Chavez’s big stick.
Chavez is popular among the poor for forcing companies to produce lower cost food. That’s great that he is trying to help his countrymen. But in the long term, this is just like what is happening in Cuba. With no foreign investment, there are no countries willing to come in and establish manufacturing plants. Lower oil revenues for Venezuela, an OPEC member, mean less money for the government to play with. This is one reason President Chavez is gearing up his nationalization efforts, to take money from the businesses to pass around. Sounds familiar.
By nationalizing companies, Chavez is planning on keeping prices down and increasing government revenues. This will only keep or turn wages lower as the government struggles to meet payroll.
Venezuela’s situation will not improve anytime soon. By getting major support from the poor, Chavez is creating a situation where he is going to increase that class of people. And he is always going to blame business for the downturn in his country’s economy. His people will suffer, but he will be the hero, because they just don’t see any other solution than what he is proposing.
