Absolute v relative poverty
This week I shall follow up on three matters related to last week’s discussion of poverty and inequality in the context of Guyana’s growth, joblessness and the minimum wage. These are: absolute versus relative poverty measures; the huge spread in wage and salary earnings; and the impact of the phantom economy on inequality and poverty.
As regards the first (absolute and relative poverty), readers need to be aware that there is a raging international debate among social scientists as to whether poverty and inequality can truly be determined absolutely or are these concepts strictly society-specific and therefore can only be culturally defined and specified. In other words can absolute poverty lines be trusted or should analysts rely exclusively on relative indicators. Importantly, readers should carefully note that without absolute poverty indicators comparisons across countries would no longer be methodologically reliable.
While I have the utmost respect for the protagonists in this debate, it does not make sense to me to measure and analyze poverty as a global phenomenon if each poverty measure has to be specific to a particular country. It would therefore be useful for readers to observe that efforts have been made by the World Bank and other such agencies to find a compromise out of this apparent impasse. Their approach is to devise various sets of measures deemed applicable to various categories of economies; for example, developing, advanced economies, those in transition and so forth.
Wage spread
Since then subsequent press disclosures have indicated a number of similarly based persons in public employment in receipt of pay representing huge multiples of the minimum wage. These include heads of several public and semi-autonomous agencies such as the Guyana Revenue Agency, University of Guyana, Bank of Guyana and the Guyana Geology and Mines Commission. These are very embarrassing indicators of pay inequality in the public sector. And, perhaps the most painful examples for the workforce are the relatively large basic payments made to politically selected government/ party advisors in excess of 30 times the minimum wage (excluding their non-wage entitlements).
The government has been utterly unapologetic about this extravagant wage and salary dispersion among public employees. Of note this posture goes against a strong progressive tradition in Guyana, going back to its pre-independence period, which loudly opposed and exposed such outlandish public manifestations of colonially-sanctioned displays of inequality. This means that the present day vulgar displays of wage and salary disparities in public employment do have ethical, moral, and social costs. Those who wish today to celebrate and perpetuate outlandish state privileges in remuneration over social and political needs and justice will eventually be penalized by public rejection.
These known wage and salary disparities in public employment are by any equitable standard truly humungous. However, I am of the view that the present gaps in the public displays of wealth (homes, cars, and other types of property) between the ruling political cabal and the workforce at or below the minimum wage are in actuality considerably greater than what most of the public believe.
The phantom economy
Thirdly, and perhaps the most important matter I propose to consider in today’s column is a query several readers have raised: Does the existence of an underground, irregular, parallel, or phantom economy in Guyana affect the analysis of poverty and inequality, which I have presented so far? The answer is clearly a resounding yes. As we have seen, the phantom economy generates income, wealth, and livelihoods for lots of Guyanese. Indeed, I have estimated elsewhere that this represents about 30 to 60 per cent of the regular economy. As readers know this is not captured in the GDP computation. However, out of necessity the GDP measure has been the basis of most of my analysis and calculations thus far.
The phantom economy is both illegal and informal because it does not operate in officially sanctioned markets and so cannot be directly measured. It can only be estimated indirectly. In my particular case this has been done through the use of monetary and financial indicators.
The phantom economy relates to the inequality of wealth and incomes in Guyana in at least three ways. First, studies across several regions and nations reveal a strong correlation between the estimated size of the underground economy and the measured degree of inequality, as indicated by Gini Coefficient indicators.
Further, when the main drivers of the underground economy in Guyana are examined the other two ways in which the phantom economy affects inequality are revealed. What are these main drivers? The available studies of this, including mine, point to three main drivers, namely, 1) tax evasion by taxpayers; 2) the operations of local and transnational criminal enterprises and networks, with or without the collaboration of state officials and members of the ruling political class; and 3) the systematic and systemic evasion of regulatory oversight and control legal provisions. Indeed, operating ‘legal’ enterprises in an illicit manner is the foundation on which most of the money laundering undertaken in Guyana is done.
The first above listed driver is by far the commonest worldwide. Readers should observe that I have indicated elsewhere the second and third drivers have been rising so fast in Guyana as to characterize this phenomenon as the growth of a phantom economy, in deference to my analytic propositions on the rapidly growing criminalisation of the Guyana state.
Because the first driver refers to potentially falling state revenue this indicates a reduced resource capacity for the state to achieve equality promoting expenditure in favour of the poor and needy. Additionally, processes of criminalisation have been shown universally to foster the concentration of wealth.