Since 2009 this column has been sympathetic to the idea of industrial policy mainly because in poor economies like Guyana there is a lack of sufficient financial capital, entrepreneurs and skilled workers. Coordination and market failures are rampant in these economies. Added to rampant market failures is the divisive Guyanese politics. Therefore, a purely private enterprise system will not lead to the kind of investments the country needs for sustained high quality long-term economic growth. There is need for the government to get involved with the private sector to shape some kind of industrial policy taking into consideration the global constraints and legally binding free trade treaties Guyana signed off on. In the past the PPP government has been reluctant to state explicitly whether it is pursuing industrial policy or as free-market critics of industrial policy label it: picking winners.
The government came out last week stating explicitly it is giving preference to medicines manufactured in Guyana, thus akin to picking a Guyanese pharmaceutical “winner”. One can argue that similar industrial policies were done successfully in Japan, South Korea, Taiwan and other ethnically homogenous Asian societies. Some economists have argued that the Asian examples had a fair deal of cronyism attached. Nevertheless, industrial policies have worked very well in the said Asian economies. Some of the big global brands we see today like Toyota, Honda, Hyundai, Samsung, Daewoo and others all benefitted from clever government sponsored industrial policies.
In theory the idea appears sound. But delving deeper one has to ask whether New GPC is indeed a winner that will generate much scientific and technological revolution in Guyana. It turns out that this “winner” is owned by the very good friend of the PPP and more specifically, Mr Jagdeo. Prior to the recent announcement, Mr Jagdeo made it clear that he was building up a new private sector. As we saw with the Marriott fiasco, Mr Jagdeo does not seem to care much about complementarities in industries, usually a feature of clever industrial policies. He made sure existing Guyanese brands like Pegasus got penalized and demonized as he did publicly against Pegasus.
The abovementioned Asian economies had a strict set of performance indicators like employment targets, research and development targets and export targets. The companies and families receiving Korean government support, for instance, had to meet these strict targets otherwise they were let go and the business would eventually fail. The fittest survived as we can see from Korean brands like Samsung and Hyundai. This was not the case of industrial policies done in Indonesia, India, Turkey or Brazil where a greater level of favouritism and family connections were in play. In the case of Brazil, however, one global world beater did emerge – Embraer, the aircraft manufacturer.
The PPP government has never clearly outlined a clear set of guidelines for industrial policy. Therefore, one is left with the feeling that the procurement system was rigged in favour of New GPC. Political motivations instead of economic logic appear to be behind the New GPC pre-qualification. This is further underscored by the fact that the owner of New GPC also owns several private media outlets that are distinctly anti-opposition but pro-PPP and pro-Jagdeo. It appears like Dr Luncheon just threw in the locally manufactured pre-condition as an afterthought.
One has to ask how many post-graduate chemistry degreed scientists are employed by New GPC to conduct basic research into drug manufacturing? The economics literature often counts up the number of PhDs and engineers doing research as a measure of the volume of research, which is the basic ingredient of technological progress. How many new medicines and products were invented by New GPC after the company was privatized? Are the products sold today mainly the ones created and developed during Bookers’ time or under state ownership? The Guyana Times – the newspaper of the owner of New GPC – claims they have introduced over 60 new products to the old lines. On the surface this appears like an impressive effort. However, how many of these were imported in bulk and put together following an imported formula established by international firms? What percentage of the firm’s pharmaceuticals is exported to earn foreign exchange relative to the sales to the Guyana government? The Asian success stories often set strict export targets. The adage holds that if the companies can succeed globally they will eventually be able to survive without government subsidies. In the case of India, its protection was premised only on the domestic market. India eventually ran into a foreign exchange crisis in 1991, thus requiring policy changes.
The public would have had answers to these questions if Dr Luncheon is serious about this new path to industrial policy. This is important because Guyana is very different compared with the relatively ethnically homogenous South Korea, Japan and Taiwan. In the case of New GPC, it receives an implicit subsidy through a monopoly right to supply drugs to the government, which is using the taxpayers’ monies to pay New GPC. Guyanese taxpayers come from various ethnic and political backgrounds. Therefore, what assurances the people of Guyana have that this is not a mere form of redistribution from the masses to a chosen good friend of the PPP which is elected largely by East Indian supporters. How ethnically diverse are the management and lower level staff of New GPC?
If the government is serious about picking winners, it will need to come up with a consistent set of performance benchmarks so that the chosen nascent company will grow up one day to be a regional and even global winner. This is not going to be easy because of the divisive nature of politics in the country. The opposition will need to have a say in the decision that goes into picking winners, because ultimately the government is redistributing funds of a divided people. What are some possible frameworks that could allow for fairness of distribution? One would expect that the Minister of Finance would have some policies to promote fairness when it comes to implementing industrial policy in a divided society.
The next column will delve deeper into some of the crucial features of private enterprise promoted by Mr Jagdeo’s PPP. We will try to understand why aggregate private investments continue to stagnate and why human development is elusive.
Comments: tkhemraj@ncf.edu
