In picking the right ideas for Guyana, Tarron Khemraj and Evan Thomas gave us some food for thought:
1. Productivity is related to the dollar wage adjusted for inflation and growth in real output per person over time.
2. What determines efficiency of labour and capital? – environmental factors.
3. Are the Keynesian vested interest groups, also known as lobbyists, in partnership with government the real forces in national economic decision-making?
4. Economic development is closely related to the quality and quantity of inputs of labour and capital and the social, political, and cultural environments in which these inputs are allowed to flourish.
At this juncture in Guyana’s history, productivity gains from any source would be dissipated as cost of living increases to keep real wages constant, obtain higher profits and dividends and greater revenue for government. These changes tend to average out over all economic sectors and result in low real output growth. Yet lower output growth occurs, if account is taken of environmental degradation cost, loss of irreplaceable bio-mass, and population loss through migration. The relevant measure of total factor productivity should therefore be indexed to a net national product idea, rather than gross. Using a net measure would reduce total factor productivity considerably.
Even if productivity increase is based on Guyana’s best years in the past on real gross domestic output, it would be a long wait for domestic savings to materialize and development to take place. Massive financial capital inflows to buy investment goods and technology, and filtering the quality of capital inflows into the country would provide a more powerful platform for economic development. Why this sudden turn to the ups and downs of productivity instead of the ‘big money’ from private capital inflows and international donors and lenders?
On the incomes side of the wage-setting equation, if we increase the quantity of labour inputs alone without competition, the productivity of labour and wages per worker may actually fall. With competition from within, productivity may increase and sustain a higher value of production than without competition inside the Guyana economic system.
Certainly, the high extraction of forest wealth and gold from large gold mining companies could be the example for buying technology, telephony, and similar hardware. On the software side of human capital development and health, waiting for productivity gains and domestic savings to trickle into development projects would leave a lot of people behind.
Given the financing side for real investments in health, education, infrastructure, and the tools people need to work with, real development could advance through choosing state-of-the-art methods of production of goods and services for health, education, and industrialization.
How the output would be created, its volume, and the output per person would also depend on knowledge, tools, and the quality of capital inflows, especially those that protect the environment or spare environmental degradation.
On the role of the financial system in economic development, there are some worrying trends, especially where the financial sector is engineered to transfer wealth rather than create wealth. Transfers occur legally through using ordinary government funds to earn and transfer interest income to those who can borrow from point A and lend it for profit at point B in a simple financial system. Extraordinary government capital, called bailout capital can achieve income transfers similarly in complex banking systems. Use government money to make interest income and return it when finished, minus any charges the beneficiary makes to the government!
Already, clever bankers and insurance companies do not have to lend money to create a single factory before ‘making money’ up the financial food chain. Economic ideas are called upon to aid and abet what a government wants to achieve rather than what economic logic indicates that a country needs.
Yours faithfully,
Ganga Prasad Ramdas
