Introduction
As indicated last week, today’s column continues the discussion of risks and pitfalls facing mineral resources extraction in Guyana. This discussion is in recognition that the country is approaching a time of oil/gas production and export. Following today’s discussion, next week I will present information on the performance of individual products over the past decade.
My immediate concern, is that recent reports, analyses, and policy advice given to the Guyanese public and authorities, from a variety of sources, (including international organisations, civil society and hired consultants), fail to incorporate in their presentations evidence of an adequate understanding/appreciation of the basic dynamics of Guyana’s economic history and the workings of its political economy, since Independence.
Weak conceptual framework
The conceptual framework underlying these contributions is decidedly weak. Most of them explicitly base their recommendations on the World Bank’s concept of ‘Total Wealth’, which I had introduced last week. As I had observed there, while this concept is typically proposed as “a new holistic measure of [Guyana’s] economy beyond the more common measure of GDP,” no analysis is offered to justify this claim. With its many limitations, the GDP cannot be successfully challenged by mere assertions. If such a method is pursued, there is grave danger of misdirection, particularly as this not-so-smart assertion has led to the claim that, “the net macroeconomic effects of mineral resource extraction in Guyana is positive and, consequently, policy focus should be directed to their microeconomic distortions”.
Empirically, nothing could be further from the truth. Indeed, the basic premise of the present series of columns (introduced in the December 27, 2015 column) is that both the macro and micro-economic effects of natural resources extraction in Guyana, already pose, and will continue to pose, unless addressed, serious pitfalls to its sustainable development. A major challenge facing the country is how to avoid these pitfalls and contain several identifiable risks of resource extraction. These pitfalls and risks cannot be wished away, especially through sleight-of-hand logic.
The forest and the trees
Readers should distinguish the forest from the trees in this discussion. In this regard it should be noted that my premise for the present analysis goes to the very heart of a fundamental theoretical divide between the two leading schools of economic theory and practice, which today contend for our understanding of the workings of economies like Guyana. This divide has existed for longer than the life of independent Guyana.
There is, on the one side of the divide, the well-established, dominant and traditional neo-classical/liberal development approach. This defines the essential development problematique of poor countries, as their failure to diffuse within their societies those ‘modernizing’ attributes found in rich countries. Such attributes encompass the role of technology and advanced techniques; the skills and training of the workforce; entrepreneurial and organizational capacity; the routine utilization of ‘modern’ machinery and equipment in everyday production processes; infrastructure (physical, institutional); and state structure (legal/regulatory/oversight).
And, on the other side, the approach that is counterposed to this is captured by the theories and practices of the intellectual left (for want of a better phrase). This approach broadly encompasses radical political economy, dependency, structuralists, underdevelopment, colonial, neo-colonial, and planation-economy schools of thought, which Latin America, Caribbean, and other Third World social scientists have advanced. For this school of thought, international relations between rich and poor countries, as typified in the historical patterns of mineral resource extraction in the latter, are systemically (as well as structurally) disadvantageous for economies like Guyana. This is because mineral resource extraction regularly serves as a driver of inequality and widening gaps, not only between rich and poor countries, but also groups and classes within poor countries, where the mineral resource extraction is located.
Learning from others
A number of comparative studies of mineral resource-rich and mineral resource-poor countries support, in general, the conclusions advanced in the above paragraphs. It is instructive for Guyanese to note that comparative research of mineral resource-rich Sub-Saharan African countries and their resource-poor counterparts, reveal, on average, crucial adverse macroeconomic effects, which seem to be systemically-led.
Thus such research indicates that, on average, resource-rich Sub-Saharan countries, have 1) shorter life spans/lower life expectancies; 2) their real GDP growth rates have been less sustainable over the medium to long-term than their resource-poor counterparts; 3) their levels of extreme income poverty (estimated at living below US$1.25 per day) are also higher; 4) there is greater volatility of GDP growth rates; 5) higher levels of corruption; 6) weaker management of public revenues and resources; 7) lower levels of education and, most notably 8) higher levels of income inequality (as revealed by Gini Coefficients). This listing is by no means exhaustive.
‘Economic curse’
Unsurprisingly, it has become fashionable in the literature of recent decades, for writers to deem several mineral resource-rich poor countries as being systemically blighted by the “economic curse” of their resource riches, and certainly not the blessing, which most would have anticipated.
Useful introductory commentary on such research can be found in A Huurdeman and B Handjiski, Lucky Countries or Lucky People: Will East Africans benefit from their natural resource discoveries? (Future Development, Brookings, February 2015) and J Stiglitz ‘African natural resources can be a blessing, not an economic curse’ The Guardian, August 6, 2012.
Specifically, it should be noted, as earlier columns reveal that, given the high levels of mineral resource extraction and investment in Guyana since Independence, its real annual GDP growth performance has been very anaemic (about 2 per cent). This compares, on average, poorly with its mineral resources-poor Caribbean counterparts, and indeed with other small mineral resources ̶ poor open and trade-dependent economies worldwide. This conforms to the evidence from Sub-Saharan Africa cited above.
Next week I shall continue this discussion and also address the recent performance of Guyana’s mineral resources extractive sector.
