Venezuelan manufacturing, SME decline, and failed transition

Venezuela’s economic system has been characterised by two attempts at “transition” to a modern economy: the first in 1958 at the start of its democratic system; the second in 1989 when it attempted to bring into being an open free market economy. These attempts have been unsuccessful in creating an open, participative and democratic economic society. One expression of this has been the relative decline in the manufacturing sector of Small and Medium Size Enterprises (SMEs) since 1960 and their absolute decline since the late 1970s. Statistical evidence is presented on this decline and it is placed in international context. Econometric testing of explanatory variables shows the significance of structural barriers in manufacturing and a lack of efficiency and innovation efforts by SMEs as key economic determinants of this process. This decline results from the deeply exclusionary nature of the economic structure, the roots of which lie in Venezuela’s political history. A genuine transitional economy implies a participative economic democracy and access to the productive resources of the economy so new wealth can be created and new firms can come into existence. The decline of SMEs highlights not only an economic problem in Venezuela but also the wider political problem of lack of real democratic economic participation.