By Tarron Khemraj
Introduction
Before outlining the meat of this week’s Development Watch column, I would like to express my deep shock and disappointment over the attack on Mr. Frederick Kissoon using putrescent matter.  Indeed, this attack parallels a new gutter threshold of a clan of government supporters. They have now plunged below using fictitious names of Afro-Guyanese women to attack in senseless ways those who critique the government.

I intend to use this column and the next few to argue that Guyana has an elected oligarchy in the form of the PPP government. I would then outline several binding constraints (or structures) that impede the economic progress of the country. I would argue that the elected oligarchy worsens the constraints (and adverse structures) and therefore it is not possible to achieve economic development under the current political arrangement. I therefore propose a transmission channel through which the PPP oligarchy engenders underdevelopment. Finally, I would suggest ways by which to correct the punitive arrangement.

The essays will examine the interactions of political and economic systems – otherwise known as political economy. For instance, I would argue that the oligarchy impedes the production transformation of the country by controlling the economic space via the restriction on investments – particularly investments from non-PPP supporters.  The chosen investors are not able at this point to pursue the massive undertakings (and risks) of structural production change (as for instance the Indonesian oligarchy was able to pull off). Thus the pace of Guyana’s economic development is at best tepid in keeping with oligarchic control of economic activities. Even large foreign investors are allowed in with a political motive – example Digicel was essentially allowed in to break the GT&T monopoly since the latter got its concessions from the PNC. The oligarchy does not tolerate the Diaspora beyond remittances. Major foreign ethanol interests are kept out.

In this low-paced development the masses will be kept at subsistence (remittances help a lot here by keeping people appeased) for a long time as the few members, family and friends of the oligarchy accumulate quick and enormous wealth with State largesse. The problem with this strategy is it breeds significant income inequality. It is ironic that our elected left-wing Marxist-Leninist government is not sensitive to the question of inequality.  Even more insidious is the tendency for inequality to emerge along ethnic lines – where most of the winners are Indians – given the ethnic voting patterns and the ethnic networking that follow from an ethnically elected government. If anyone travels around Guyana this inequality is stark given the pockets of new glitzy homes in the midst of many decrepit ones. In other words, the oligarchic economic growth rate does not lift all boats.
The nature of the oligarchy
The Guyana oligarchy has several features that emerge out of self-defeating political and Constitutional arrangements. First, the oligarchy emerges out of the Marxist-Leninist Democratic Centralism of the PPP’s Executive Committee and Central Committee. Essentially these committees do not tolerate dissent from within. The members collude in voting and other actions to marginalize dissenting members. Two recent examples would be Mr. Moses Nagamootoo and Mr. Khemraj Ramjattan. In the case, of Mr. Nagamootoo collusion in voting in the Central Committee kept him out of the Executive Committee even though he got the third highest vote count at the party Congress. The point I am making is dissent is important for any organization to progress and serve the interest of Guyana. However, the PPP is selecting like-minded individuals who are expected to make major policy decisions in government. So far we have seen the unrealistic nature of the policy – example the financing side of LCDS. In government no one is even able to question these policies as he/she is either not capable of doing so or typically has a little cocoon (owing to the benevolence of the top man) to protect. Eventually a few like-minded individuals and a mixture of sycophants emerge in the PPP’s Executive Committee to determine the destiny of the nation. How is this so? We must now look at the national Constitution.

Second, the head men/women of the oligarchy (the Executive Committee) utilize the tinkered 1980 Burnham Constitution, which gives the President enormous powers and the system of proportional representation embedded in it allows for unaccountable Members of Parliament to be selected by the brew of oligarchic leaders. We are always reminded about the return to democracy; but what we have is a selected list of Members of Parliament which is offered to the electorate. These individuals have been filtered by a process in the PPP which does not tolerate alternative ideas and dissent. Thus it should be no surprise that when time comes for policy the President makes all the decisions. The others are typically sycophants with little cocoons to protect.

Third, powerful members of the party and selected like-minded government officials are in a position to channel State contracts, jobs and even implement laws to benefit those with the political connections. These individuals accumulate enormous amount of wealth which is then used to bankroll the political party. In other words, these internally filtered members, who are elected by the masses, then determine the economic destiny of the country by picking their business leaders. President Jagdeo once referred to this emerging class as the Newly Emerging Private Sector (NEPS). I hope the public understands the profundity of the statement and its echo of a highly controlled but slow paced economic progress.

In concluding this section, I argue the Guyana oligarchy emerges because of Democratic Centralism, internal party collusions, the selection of the business class, and a Burnham Constitution which allows these individuals to use political power for their own economic aggrandizement which does not coincide with the betterment of the country.
Binding constraints and punitive structures
Before outlining how the oligarchy impedes economic progress, I must first explain several constraints that exist – regardless of which government is in power – that make it almost impossible for the country to progress. The current oligarchic arrangements worsen the constraints.

The first constraint is a lack of a developmental state. A developmental state, according to Peter Evans, is one which is embedded and autonomous. To be embedded implies there is a set of social ties that binds the state bureaucracy to society. When the state is embedded it continually cajoles the private sector over a set of coherent and realistic policies. Moreover, the political views of the investor do not matter as the bureaucracy is motivated by a social purpose.

To be autonomous means the bureaucracy is independent of political and private sector control. Autonomy is created by well paid and long-term career paths.

The developmental state is characterized by a bureaucracy that is selected via meritocratic recruitment and comprise of well paid long-term career paths; the latter leads to corporate coherence and professionalism in the public service and government. A developmental state does not seek to control the economic space for the aggrandizement of members of government. The developmental state must pursue industrial policy (as I have argued in these columns) but for social betterment of the masses and not to grow the power of the Executive Committee of the PPP.

Today in Guyana the elements of a developmental state are sorely lacking. For example, many are given contract employment with high pay. But these are short-term in nature as contracts are renewed yearly. The purpose of this strategy is essentially to control as the bureaucrat is likely to be follower in order to seek contract renewal. Also the head of the Presidential Secretariat is a seasoned politician, thus reversing a progressive policy of President Hoyte who was beginning to move away from the political control of the public service. Meritocracy is not the guiding principle for entry into the public service.

The reason why this type of state capacity is essential has to do with the fact that the State would need to pursue some type of industrial policy for the task of structural production change. This is necessary because of coordination and market failures inherent in an economy like Guyana. Therefore, a collection of skilled and forward looking bureaucrats is essential to work with the private sector and to develop financial markets where possible.  But these people must have the requisite skills.

Unfortunately the World Bank and IMF do not promote this type of state capacity for the purpose of enhancing the production transformation of a country. They typically encourage the building of institutions – financial laws, consumer laws, property rights laws, and some public sector reforms – but for a different purpose. The purpose of these institutions is for free market development; the latter stems from a fundamental tenet of a branch of economics known as New Institutional Economics (NIE), which promotes the building of institutions with the hope to nurture competitive markets. However, while it is clearly important to build institutions from an NIE perspective, I am always sceptical of this arrangement as it fails to enhance the capacity of the State to pursue industrial policy to change the production structure. In my academic work, I have argued that small economies like Guyana would tend to be dominated by oligopolistic forces in finance and firms in the real sector because the small size acts as a natural entry barrier. These narrow financial markets and small production sectors do not lead to contestable markets where new entrants are always lining up to enter to reap profit advantages.

So not only do we need to contend with the structure of smallness and limited opportunities for profit taking (a clear coordination failure), but also an oligarchy which controls the economic space by promoting its own sympathetic business interests in the private sector. It should be no surprise why the pace of development has been so slow. It should be no surprise, furthermore, why Guyana’s oligarchic growth rate is unable to lift all citizens from poverty and subsistence living.

In the next column, I would continue to explain the other binding constraints and demonstrate how the oligarchy impedes economic progress of the masses. I would also explain some possible ways to correct the adverse situation.

Comments and critiques are welcomed at: tarronkhemraj@gmail.com