By Tarron Khemraj
Introduction
The last column noted that politics and economics are intimately connected. This is the notion of political economy. It was noted that an oligarchy is made up of a very small group of people with both political and economic power. The previous column (SN June 9, 2010) explained the nature and cause of the post-1992 Guyanese oligarchy. It was argued that the contemporary Guyanese oligarchy is rooted in the PPP’s Democratic Centralism, internal party collusions against dissenting members, selection of the business class, and the use of the Burnham Constitution.
One should not underestimate the extent of the consolidation of power by a few individuals in the PPP government. They are in total control of who invests in the private sector, who will receive concessions from the government, and in what economic activity to invest. Take for instance the recent announcement by President Jagdeo that he will “now” seriously explore the possibility of making ethanol from molasses (SN June 20, 2010). In spite of the logic of having a national E10 policy (meaning mixing imported gasoline with 10% locally made sugar ethanol) – which creates a captive market – nothing was done in this regard over the years. Indeed, ethanol has not been a front burner agenda of the LCDS compared to say the other sensible target industry of ICT. The point is this sensible policy is only pursued when the President decides to pursue it. It ought to have been done years ago; but better late than never.
Furthermore, they are in total control of the still ethnically unbalanced security forces. The fact that the security forces are not balanced does not mean the Indian-dominated oligarchy lacks control of the forces. The extent of the control is so far reaching that the Minister of Foreign Affairs and President Jagdeo can pick and choose assistance to reform the police force. They have refused American, British and Canadian assistance and have chosen an IDB project instead (SN June 20, 2010). Therefore, when the police force continues its unprofessional pursuits that result in the killing of innocent civilians and harassment of the people – Mr. Rohee and President Jagdeo are ultimately accountable. Similarly, when dozens of senseless criminal activities and murders are never solved the ultimate blame falls on the desk of Mr. Rohee and President Jagdeo. When no one is brought to justice for these crimes the ultimate blame falls on the desk of Mr. Rohee and President Jagdeo (including the failure to bring anyone to justice for the murder of Minister Sawh). Oligarchic control comes with accountability. The police are responsible but President Jagdeo and Mr. Rohee are accountable to the masses. And when economic growth rates fail to lift all citizens the key leaders must be held accountable.
Some readers have noted that the previous column failed to acknowledge that an oligarchy could be relevant to any political party that rules Guyana given the Constitution. On the surface that is a valid point. However, at this moment it is the PPP which uses both Democratic Centralism and the minimally tinkered 1980 Burnham Constitution to consolidate the power of a few individuals. It is for this reason I would prefer to see the development of institutional arrangements (constitutional, legal arrangements, public sector reforms, etc.) that will create the necessary checks and balances to preclude contemporary and future oligarchic arrangements from taking over.
Binding constraints and punitive structures
The previous column argued that the lack of a developmental state – which involves a meritocratic public service – is a main constraint preventing economic development. The nature of the developmental state was explained. I will now continue outlining some of the other constraints. The point to note, however, is these constraints are made worse with oligarchic political and economic control; hence the perpetuation of economic backwardness and underdevelopment.
The second constraint pertains to a backward production structure since independence in May 1966. As noted in an early Development Watch column, Guyana’s production structure remained primitive over the years (see SN January 20, 2010 and SN July 15 & 22, 2009). The point here is the citizens of a country are as rich as what they produce. Essentially the country produces products that are low in export income elasticity and are at the low end of the global hierarchy of products. Moreover, if Guyana continues to be dependent on primary commodities then the future revenue streams will obviously be susceptible to external shocks. At the end of the day, sound macroeconomic fundamentals are dependent in the nature and structure of production.
During the Jagdeo era there appears to have been a conscious policy to promote mainly small scale businesses. For instance, there are many celebrations over the opening of a roti shop at the airport or a gas station at Diamond. While nothing is fundamentally wrong with this strategy, these small mom and pop enterprises need to be coupled with a core set of large scale industries to propel them to the next size threshold. This argument is basically the old Rosenstein-Rodan big push idea where there must be simultaneous industrialization, across sectors, in order for each sector to take advantage of the positive spillover coming from the others. This would require coordinating investments across sectors and industries. Oligarchic control of private investments makes this coordination difficult or almost impossible – especially as the leaders wait until a friend or family emerges to invest. It should not be a surprise that pockets of progress exist in the midst of serious economic backwardness and poverty as the PPP’s oligarchic growth does not lift all boats.
The third constraint involves the dearth of human capital. This involves a shortage of engineers, scientists, entrepreneurs, CEOs, financial analysts, etc. When there is a shortage of skilled workers the last one wants to do is allow adverse intra-group ethnic networking to dominate a meritocratic and competitive labour market. Given this shortage, also, it is strange there is no Diaspora policy to date to seek to fill the human resource gap. This shortage would require utilizing all talents. To a large extent, Constitutional reforms will be needed to set the stage for post-elections political cooperation so as to ease this constraint.
The fourth binding constraint is lack of finance. When there is a shortage of development finance the last one wants to do is pin all hopes on one main source of funds – example the REDD (Reducing Emissions from Deforestation and Degradation) schemes on which the financing of the LCDS is based. It would be better to pursue not only financing from REDD schemes, but also private foreign investments, a State Development Bank, concessional multilateral loans, and other creative sources. These could be done simultaneously rather than just throwing back, putting up the feet, and waiting for the one source to materialize. Of course, of great importance, is the need to free up the private investment space.
The fifth constraint pertains to the lack of physical security. Police reform continues to be an elusive objective. Brutal crimes and robberies are never solved and perpetrators are never brought to justice. Hence, investors have to price in these uncertainties when making an investment decision. Only high returns will compensate for these uncertainties. But as we have noted many punitive structures exist that diminish the profit possibilities of private investment projects. In addition, the failure of the government in delivering security means the private investor must spend on security thus further diminishing the expected future profit of the project. The government is obviously oblivious to these outcomes given the fact it turned down offered assistance from foreign governments. This is the same government which lives on foreign aid for other purposes; but it suddenly turns down assistance for necessary police reforms. It has chosen an IDB project instead. Progress to date is at best dubious. I say all aid for security reforms ought to be accepted given the seriousness of the constraint.
Conclusion
So far these columns have emphasized the nature of the oligarchy and several binding constraints that propagate economic underdevelopment. While some of the constraints might not have been engineered by the PPP government, the pursuits of political and economic control have engendered its own difficulties and compounded the old structures that prevent private investments. In the next column, I will explain the basic transmission channel through which oligarchic control retards growth and development and some possible measures to move forward.
Comments and criticisms are welcomed at: tarronkhemraj@gmail.com