By Dr. Clive Thomas
Classic prototype
Continuing from last week’s column it should be noted that, worldwide, Guyana’s economy is regularly portrayed as a classic prototype of the small, poor, open economy highly dependent on the production and export sale of primary commodities, with limited industrial processing of these.
Indeed the bulk of Guyana’s income, value-added, employment, foreign exchange earnings, as well as exposure to modernized technological processes flow from primary commodity production and export sales. The principal sectors are mining and quarrying (mainly gold, diamonds, bauxite and silica); agriculture (sugar, rice, other crops and livestock), seafood products (mainly fish, shrimp and prawns) and several types of forest products (logs, sawnwood and roundwood).
A distinguishing feature of economies like ours is that over the past several decades the long-run trend has been for the prices of their principal products in global markets to lose substantial ground relative to the prices of manufactured consumer goods, capital equipment and services, the bulk of which they import. This tendency for what is termed as “adverse of trade effects” means that the exchange prices for our products relative to others limit the opportunities for sustained development, income growth, employment expansion and so forth.
Several factors combine to produce this unwanted situation, both on the demand side for primary commodities and the supply of them. On the demand side we have such considerations as the long run tendency for consumers to spend less and less on these commodities as a proportion of their income, when their incomes rise. Further, the availability of substitutes encourages demand substitution and therefore reinforces this tendency to declining demand. On the supply side, improved technology and the relentless growth of expertise among the workforce in many commodity producing sectors have led to much enhanced productivity and output. The situation in Guyana has been further aggravated due to the depreciation of the US dollar in world markets and therefore the Guyana dollar to which it is pegged.
Commodity boom and bust
From time to time, but very infrequently, economic circumstances conspire to reverse the long-run tendency to secular decline in the terms of trade and produce what can be described as a commodity boom. These are, however, very infrequent occurrences. When they occur they need to be seized by the policy-making authorities to support efforts to diversify and promote sustained development among primary commodity producing economies.
From this perspective, we should therefore ask the following pertinent question: how could Guyana’s policy-making authorities frame the present international conjuncture as it does now, as an unasked for and unmitigated economic disaster? This is truly incredible, and underscores the lack of vision, analytical depth, and attention to correct diagnosis, which attend to economic policy initiatives in the country.
Why, we may ask does such a policy stance emerge? This policy stance I believe is largely, but not exclusively, the product of one major circumstance. That is, policy-making is basically reactive and shaped to meet short-run political objectives as its top priority. In this particular instance, that priority might well be to defuse opposition protests against rising prices.
Let us be clear, however, on one basic economic truth. Beating back rising prices as an end in itself is in effect geared to depress the incomes of those benefiting from rising prices and to fight the signals the market is sending to economic agents.
Laissez faire
Does this mean that the policy-making authorities should do nothing and simply let market forces rule unconditionally? Of course not! What needs to be done is to begin to fashion economic policies in a clear well thought-out inclusive strategic long-term framework. For example, the truth is that the tragic effects of rising oil prices are seen in the heavily reduced purchasing power of all those who have to pay them. But over and beyond this, there is an even greater tragedy, which is our continued inability since the 1970s, when the energy crisis first caused severe damage to the country, to produce and apply a coherent, sustained energy policy. In particular, one that develops incentives both to conserve energy and to stimulate the supply of energy products.
What passes for energy conservation policy on the demand side of the equation is, by any measure, limp. The issue comes up sporadically when crude oil prices rise. When they fall it fades below the radar screen of public discussion.
We can also say that there has been no consistency in energy-supply policies since independence. What have we done consistently over all these years to harness the abundant hydroelectric, biomass, and solar potential of this country at either the national, firm, or government household level?
It is the lack of vision, analytical depth and diagnostic capability referred to above that lies behind the simple, but daunting fact that, in the decade after President Cheddi Jagan’s death and up to last year (2007), Guyana’s real GDP grew on average by only 1.2 per cent per annum, substantially down from its 1991-1997 performance of 7 per cent per annum. In four of the years between 1998 and 2007 real GDP growth was negative!
While this failure to increase real GDP growth has generated much concern among the international financial institutions, the University of Guyana and other universities in the region and further afield, I am not aware of a single diagnostic study of this remarkable phenomenon put up for public scrutiny by any agency of the policy-making authorities. In fact the effort of their spokespersons has been focused at providing excuses, disputation of their own self-generated data, and criticism of authors, much to the chagrin and disgust of those really concerned with seriously addressing issues of the Guyanese economy.
Next week I shall continue this discussion.
