Without profits, the former Soviet Union learned the hard way back in the early 1990s, companies and industries have no incentive to a) make a decent product; b) make any product at all. And yet, left-wing leaders throughout modern history continue to impose rules that provide disincentives when economic times get tough.
Panama is the latest country undergoing these disincentives on its way to a total collapse.
After weeks of strikes, highway blockages and increasingly tense protests that have led to greater shortages of fuel and other products, last week the Panamanian government announced that it will put price controls on 72 food items, while agreeing this week to put price caps on 150 medicines.
"With the regulation of the 72 products, the cost of the basic food basket would decrease by 30%, a savings of more than $80," according to a statement issued by the office of President Laurentino Cortizo, Reuters reported. Panama uses the U.S. dollar as its currency.
TeleSUR further reports:
The agreement covers actions to ensure the price stability of 72 products of the basic food basket, covering rice, bread, different types of fish, sausages, chicken, vegetables, and legumes, as well as cleaning and toiletries products.
Besides capping medicine prices, the government announced that it will be establishing conduits for the direct purchase of medications so as to curb shortages at publicly supported hospitals. The government said that price controls would come to fruition via a combo of price caps, financial assistance in the form of subsidies, reductions on tariffs, and limits on margins.
The agreement came as a result of the latest round of negotiations which were mediated by the Catholic Church between representatives of the government and several protestor groups including labor unions, civic organizations and indigenous people. The widening protests were spurred by a teacher's strike due to the rising cost of their commute because of escalating gas prices (which were going up because the commodity needed to produce gasoline -- oil -- has also been skyrocketing).
For the time being, the announcement has led to reduced protests. Panamanian Security Minister Juan Manuel Pino said the country's roads were "all open" for the first time in weeks, while teachers returned to school on Tuesday.
But the agreement is not likely to last over the long term even if it is temporarily placating protestors, many of whom were upset by what they saw as government officials padding their own pockets and those of their families and friends. That's because such measures rarely work for long -- they are simply stop-gaps on the way to a total collapse and generally only buy governments time to reorganize and get ready for the next storm.
That's what happened in the former Soviet Union over the course of about 70 years: Price controls, communist economic principles of state-owned enterprises and little-to-no profits led to economic doom. It's also what happened to Cuba long ago and why Venezuela, once the economic crown jewel of South America that boasted massive oil reserves, has now deteriorated into a socialist nightmare of poverty.
"The government continues to engage in talks with the protest coalition, which has many other demands, including another cut in fuel prices, lower medicine prices and allocating 6 percent of Panama's GDP to education. Another demand is the establishment of a maximum profit margin for economic intermediaries, such as product distributors," Zero Hedge reported, citing the People's Dispatch.
"Paired with the growing set of price caps, the protesters threaten to push Panama deeper into a dark spiral of government economic control and public discontent over the unintended consequences," the outlet added.
Things are not going to end well in Panama.