My reason for following up on a thread by Tarron Khemraj in Stabroek News, November 25, 2009, is to promote clarity in associating short-term productivity gains with the more serious focus on the future outcomes of national development.
Associating productivity with a long-term standard of living is correct. However, productivity and economic development are strange bedfellows. Development requires capital flows, among other things, from the savings of residents and non-residents, as we see in the China-United States relationship. Productivity resides in the realm of marginalism and belongs to the real wage equation of microeconomics, where we at least try to keep our heads above water and cover the rate of inflation through market or non-market wage settings. How amusing was a Guyana teachers’ wage contract not so long ago!
Food production through the mobilization of savings and external capital, without cutting down the forest and harvesting it for multinationals, would be a challenge for the nation, since much of the high-value potential unleashed for national development has simply vanished. The allocation of existing natural resources among competing uses could result in an enhancement of the productivity of land, if indeed the forestry resources including land are not called upon to fuel real productivity increases in the food-producing sectors. External savings may also materialize. Some transformation of the national forestry wealth taken out of the country resulted in overseas foreign wealth or capital outflows.
External savings may one day appear on the horizon as capital repatriation or as private-sector capital inflows mobilized to fund development projects. Those residents and non-residents benefiting from Guyana’s wealth transformation could be the likely sources of savings required to finance the long-term investment streams needed for Guyana’s economic development.
Lord Keynes may have little relevance for the natural flows of capital into Guyana, as vested interests played a vigorous role in the exploitation of Guyana’s wealth. Microeconomic real wage productivity would help to raise standards of living, but would be insufficient to fulfil all the development promises made by vested interests. At best, productivity enhancements may cover both inflation and pay for the interest indebtedness on wealth transfers from the forestry sector through investment trusts within the financial sector, as the harvesting of economic rents contained in the value of logs takes place. Clever bankers are always at work to make more money through moving financial IOUs that are claims on real wealth, such as houses made from wood and concrete. Flows of funds within the financial sector, without lending to the economic sectors on projects, allow bankers to ‘make money’ and up-front bonuses before production takes place without lifting a finger!
Indeed, from the left pocket to the right pocket as we see in the US financial meltdown – and Guyana is no exception. Lord Keynes cannot help us! He lived in a different century! Vested interests rule the world! The USA is living testimony of the opposite side of the Keynesian river of ideas.
Yours faithfully,
Ganga Prasad Ramdas
