Introduction
Guyana is a poor country. Average GDP capita is less than US$1,000. Yet there is a large disparity in wealth – one only has to see the luxury SUVs on the roads to realise that there are people living in Guyana whose wealth is significantly greater than the average. Yet, the income of most of those driving those SUVs, if compared with that of those living in the most developed nations such as the United States of America, would rank less then the median – in 2001 the median income was US$39.9 thousand, at today’s exchange rates near enough $8 million, a salary earned here only by those at the highest level of management. These figures pale into insignificance next to the wealth of the richest Americans. Forbes reported that in 2006 for the first time all 400 of its list of its richest Americans had a net worth of at least US$1 billion, some US$1250 billion in total.
Wide disparities of wealth exist both within and between the developed world and the developing world. I strongly believe that information asymmetries play a large role in the widening gap between rich and poor. Education is of paramount importance if one is to compete in a world where global frontiers are rapidly shrinking. The poorest countries are least able to afford to educate their workforce to a level where they can compete on a global basis. Similarly, families with the lowest incomes will find it most difficult to put their children through tertiary education – the financial burden may be too great or the family might have to send school leavers to become bread winners just to get by.
There are many areas where I think that when one party has information which the other side does not this contributes to their well being at the expense of the other party.
Labour market
Nearly every position which is advertised in Guyana does not carry a salary as part of the advertisement. Typically, when the subject of pay is raised at the interview it will be the interviewer asking the interviewee how much they are expecting for the position, not the other way around. Because the candidate does not know how much the employer is willing to pay they may end up offering to take the position for less than if the salary for the position had been advertised. In this way the lack of information has resulted in an advantage to the firm, they have lower costs than would otherwise be the case, while the employees are being paid less than would otherwise be the case. Of course there is a downside to employers by using this strategy. By not advertising what a position is worth, many potential candidates may pass the position simply because they do not realise that it would result in a pay rise if they took the job. Thus the market for talented individuals will stagnate, making it harder to fill positions in the long run.
Housing market
I have mentioned in my Stabroek Business column before that house price information is not published nor are asking prices advertised. This does buyers a disservice because they may pay a higher price than they may otherwise have had to. There is an incentive to under-report the value of the transaction to minimise various taxes. If the value is under-reported this contributes to inefficient markets as the information may not be of use in deciding what to offer or put a house up for sale for.
Investments
A survey in the United States of consumer finances (SCF) by the Federal Reserve Board demonstrated that white families are considerably more likely than black families to own stocks and other relatively high-risk investments. The 1998 SCF found that about 22 per cent of white families and about 9 per cent of non-white families own stocks. About 18 percent of white families and about 8 per cent of non-white families own mutual funds.
Savings in relatively high risk investments such as mutual funds and stocks accumulate faster than lower risk investments such as deposits. However it requires greater financial acumen to make such investments. Hence those with the knowledge are able to invest and accumulate wealth faster than those who do not have the knowledge.
As it stands in Guyana there is little demand for higher risk investments and money is left in the banking system. A culture of share ownership would mobilise these funds for development.
Hire purchase
In Guyana the transaction which is most likely to result in transfers of wealth is hire purchase. The almost complete absence of consumer protection legislation means that the company providing the goods has all the information to hand. The seller knows all the legal ins and outs and they know the effective rates of interest which will apply on the transaction. Typical rates in Guyana are around 40% per annum. This is ten times the rate earned on a savings account. I wonder if people really realise the fantastic returns they generate for those they are borrowing from at their own expense.
Conclusion
I believe a large amount of inequality in wealth is due to parties with education and access to information being able to accumulate wealth at faster rates (and in some cases at the expense of) those without. Until people demand and are able to access information, be it from prospective employers, the government or the providers of goods and services they are being dealt a disservice. A government that is genuinely concerned with the wellbeing of its citizens will lead by example: carrying out its dealings in a clear and transparent manner and providing up-to date information on its transactions. It can then mount a public education campaign to make citizens aware of the information they need in order to maximise their wealth-generation potential. A culture of savvy investors, able to mobilise liquidity in the banking sector would go a long way to counteract years of underdevelopment.
