Dear Editor,
The ideas we have proposed in the paper justifying Unity and Human Development (UHD), can be downloaded at http://bit.ly/18odYmG. We welcome criticisms and comments. Here is another of the principles in which we argue for the promotion of sustainable micro industries in villages.
Microeconomic stability requires attention at household, collective, and small business level as a component of a focus on human development. We must deal specifically with programmes targeting the growth of household wealth, rather than assume that trickle-down effects of macroeconomic policy will suffice. A ‘bottom up’ approach should be considered to resolve the dilemma in many societies where poor or non-existent bottom up approaches may fuel the persistence of poverty despite macroeconomic stability. The promotion of sustainable micro industries at the village level must be an integral part of the creation of a developmental state in Guyana, and appears achievable given our history of analogous successes after slavery and indentureship.
A person’s long-term earnings will depend on his or her level of education and career path. Similarly, the well-being of citizens of a country is largely a function of what the country produces. If the major products are primary and extractive in nature, then their prices will be determined in global auction-type markets. This means their prices will be volatile and subjected to wide swings. As the price swings, so too will be the fortunes of the people dependent on those commodities for livelihood.
The income elasticity associated with most primary commodities and basic manufacturing goods tends to be low. This means that as incomes in the main export markets rise, the demand for these commodities increases less than proportionally. For example, when people become richer they spend a greater percentage of their income on vacations, leisure, education, health and energy. They do not increase their demand for sugar. They would demand higher end food types.
Some production sectors also promote greater positive spillovers to other sectors. For example, manufacturing and production requiring technical knowledge often lead to productivity improvements in other sectors of the economy. This proposition is the well-tested Kaldor growth law. Another proposition associated with Kaldor’s growth holds that GDP growth is a function of manufacturing growth. A favourable feature of manufactured goods is that their prices are determined in administered markets with oligopoly sellers. Therefore, the prices of manufacturing goods tend to be less volatile compared with primary commodities whose price can change by the minute.
For these reasons, some economists have often emphasized that the structure of production is important. Achieving the right structure is a dynamic process. This implies that we cannot merely concentrate on perceived comparative advantage as old-fashioned economic theory suggests. The developmental state must constantly set the stage for the private sector to reinvent itself and evolve, producing higher value products for domestic and global markets.
Yours faithfully,
Terrence Simon
Hubert Wong
Tarron Khemraj
