Corporate Destruction.(Hugo Chavez's economic policy)(Column)

A thunderstorm is brewing, and Antonio Arellano, clutching a scrap of paper bearing the number 41, is still far from the head of the line outside the government grocery store. But the 49-year-old printer repairman is not complaining. "Anywhere else," he says, "things are at least 20 to 30 percent more expensive. A chicken here costs 2,400 bolivares [about $1.50 at the official exchange rate]. On the street it's 5,000." The modest, red-white-and-blue-painted store is part of the Mercal chain, an expanding, government-run operation selling cheap staples to the poor. It was launched by Venezuelan President Hugo Chavez earlier this year after a crippling two-month national work stoppage against his government. According to the chain's national coordinator, Army Gen. Wilfredo Silva, Mercal already distributes 1,500 tons of food a day, projected to rise to 2,000 tons shortly.

Chavez describes himself as a "revolutionary," but until recently he'd pursued a fairly orthodox economic policy. Not anymore. Since the end of the business-led strike, which contributed to a 29 percent collapse in economic output in the first quarter (worse than Argentina at the height of its recent economic crisis), Chavez has greatly increased the state's role in the Venezuelan economy, dealing a blow to private companies. Overtly political retail-price and foreign-exchange controls have ravaged normal commercial trade and hobbled manufacturing firms that were already reeling. The government not only distributes basic goods now, but has begun importing (duty free) staples like rice and chicken. It has even entered the light-manufacturing sector, producing textiles and processing coffee. Typically, these days only those companies that are "with the process" (government jargon meaning with the revolution) are asked to tender bids for state contracts. "What we're seeing," says economist Francisco Rodriguez, "is the destruction of the formal private sector."

Rodriguez, who is chief economic adviser to the National Assembly, used to be a Chavez sympathizer. But he now charges the president with the worst economic mismanagement in 50 years. He's got some evidence: a recent survey by the industrial-trade group Conindustria showed a 61 percent drop in the number of manufacturing ...