Chavez's government has fostered deindustrialization

The national government is keen to kick-start the "third engine" of the economy: the industry. These were the guidelines set out by Jorge Giordani, the minister of Planning and Finance.

"The third engine of the economy, which is the industry, must be started because its levels are low (...) We must boost the industrial and agricultural sectors to produce for nourishment purposes and to lower inflation," urged Giordani in light of first-quarter economic-performance figures published by the Central Bank of Venezuela.

His plea seems overdue based on the results of the industrial policies of Hugo Chavez's government since 1998. By the end of the first quarter of this year, the manufacturing sector merely grew 0.7%, way below the performance levels of areas such as trade and telecommunications.

Economist Leonardo Vera believes that the deindustrialization process began toward the end of the 80's and has worsened during the so-called "Socialism of the Twenty-First Century."

"Falling employment and production rates are signs of the deindustrialization process of the Venezuelan economy since the late eighties, indicating in retrospect that the process has persisted practically uninterrupted for nearly twenty years," adds Vera in his "Paradox of Deindustrialization: Does Kaldor's Third Law apply to Venezuela?" included in Nueva Economía, a publication of the National Academy of Economic Science.                                

The author recalls that in the 1950's an "effort" was launched to encourage industrialization, persisting with a change toward democracy in the sixties. Nevertheless, the "neoliberal twist" of the eighties and Hugo Chavez's administration have left industrial development aloof.

"With the advent of the Bolivarian revolution, policies aimed at the industrial sector have stagnated."

Wasted time

According to Vera, industrial policies over recent years have been marred by controls, expropriations and government restrictions.

"Since February 2003, Venezuela has restricted free conversion of currency and implemented a foreign-currency system based on increased controls, expropriations and nationalizations in key supply areas for the productive sector, also targeting manufacturing, distribution and trade of finished products."

The results of those measures are extremely adverse: loss of productivity, reduced employment in areas crucial to the nation's economic development and a lower number of industrial establishments.

"Historic data indicated that employment within the manufacturing sector peaked in 1988 and then entered a downward trend and stagnated from there on, with no foreseeable rebound. In fact, the loss-of-employment process in the industrial sector has persisted over the last decade."

Vera adds that the manufacturing sector has lost significant leverage in the composition of the Gross Domestic Product (GDP) whereas dependence on petroleum-related revenues has increased, and certain sectors "displaying low productivity levels" have also grown.

"Compared with 1989, the number of industrial establishments in Venezuela in 2007 fell by 25%. The highest mortality rate is evidenced in large industries, which represent only 8% of all establishments, yet generate more than 50% of the sector employment," concludes Vera.

Translated by Félix Rojas Alva