Latest update April 24th, 2024 12:59 AM
Jun 25, 2009 Letters
Dear Editor,
Please allow me to dispel several misinformed and misleading points contained in Elizabeth Daly’s letter (Kaieteur News 20-06-2009).
Ms Daly missed the key point of my letter in which I characterised the Guyana economy as a donkey-cart economy. Indeed, the first person that I am aware who has coined the term donkey-cart economy is Dr. Cheddi Jagan to emphasise the mismatch between the PNC elite’s extravagant lifestyle and the abysmal state of the Guyana economy.
What I have done in my letter is to define and clarify this notion and to show how ironic that after 17years of PPP rule Guyana has not moved away from Dr. Jagan’s donkey-cart economy. In addition, I have listed 10 reasons which are derived from my studies on the Guyana economy and my understanding of development economics.
My letter does not seek to disparage Guyana or the people of Guyana. Rather it is meant to clarify and expose the colossal economic policy failures under the PPP and in particular the Jagdeo Administration. That the latter has caused Ms Daly discomfort is testimony to the fact it has achieved its objectives. I hope the Guyanese people and in particular the opposition will realise the policy failures of the government and articulate how their policies would drive Guyana away from the status of donkey-cart economy. The Guyanese people deserve such clarity.
Guyana’s fundamental problem is its outdated production structure. A country can only develop by transforming its production structure. Daly totally missed this point. Furthermore, my letter argued that this production transformation requires cooperation along political lines because it will require industrial policies, which would require unconventional mechanisms. The reason why there is need for cooperation has to do with the fact that economic policy can have adverse outcomes from a distributive perspective; whereby in Guyana the risk is one ethnic group dominating the policy agenda and the benefits because of the ethnically bi-communal nature of the society (a term well defined in the political science literature).
I am also highly suspicious of the PPP’s democratic centralism whereby like-minded leaders are filtered by 15 individuals at Freedom House to become that party’s Parliamentarians and President. These filtered leaders, who think alike, are then offered to the electorate. They succeed because of an ethnic numerical majority. They are then given the luxury of the tinkered 1980 Burnham Constitution to rule over the masses. I can never agree with that and for that I have said on other forums the PPP is a deeply flawed political party.
The latter point was more clearly explicated by my first letter on the donkey-cart economy (SN 25-03-09). Thus Daly’s outpouring of the “fundamental principles of democracy” is suspicious at best – while it is democratic for 15 individuals at Freedom House it cannot be democratic for the masses.
I have no reason to doubt Daly as it relates to the stability of the Guyana inflation rate since the Hoyte reform period when the parallel exchange rate was merged with the official rate. This event precipitated a rapid depreciation of the exchange rate and significant inflation pass-through. Those events are well known and Guyana went through a much needed adjustment period under Mr. Hoyte.
In a sense, Mr. Hoyte did the dirty job of adjustment and one can only wonder whether a PPP government could have survived had free and fair elections not been postponed until late 1992 (however, that’s another matter for another day). By end 1992 (which really was a PNC year) inflation had dropped significantly; in other words, the economy was already on a stable trajectory. Of course, the PPP government maintained the price stability. For that it should be complimented as the Hoyte Administration should be complimented for doing the dirty job.
However, Daly like all the other PPP letter writers is missing another fundamental point of the donkey-cart economy letter. That is, stabilization (price stability) does not guarantee sustained growth and development although it is important. Stabilization policies which are part of the mandate of the central bank and the IMF’s financial programming are really focused on the short-term. I do not see any clear policy specification since 1992 that would transform production – a long-term issue.
The very early PPP understood this distinction when the great economist Nicholas Kaldor was called in to help redesign and reform the tax system. Dr. Jagan’s objective back in those days was to use the mobilized domestic savings to promote industrial development. Well this current PPP has finally after 17 years given us a clear long-term policy specification – the low carbon development strategy.
However, as several commentators have already noted REDD could become red or just a little green! I have said and I will say it again REDD must be complemented with a renewable energy industrial policy, which would simultaneously achieve production transformation by creating totally new sectors, engendering jobs, and saving or generating foreign exchange. These policies are totally beyond the stabilization mandate.
Daly cites the “grow more food campaign” of 2008 as a new policy agenda. So far I have not seen any analysis of the outcomes and it is too early to make any judgment. But I doubt it will achieve significant economic progress for Guyana. Don’t get me wrong – growing more food is important and families and small farmers ought to be encouraged to do so. But if the objective of the “grow more food” campaign is to make farmers self-sufficient, then it would have created yet another low productivity petty production structure – a feature of the donkey-cart economy.
I hope the PPP realises there is a narrow line between self-sufficiency and Sir Arthur Lewis’ subsistence level of living. It is encouraging to see, however, that the government is finally pushing large scale agriculture at the CARICOM level as that is a sure way to move beyond a petty agricultural production structure. I hope they are also envisioning to implementing agro-processing to the list of products rather than just selling pumpkins, squash, cabbage, etc.
Daly cited a set of statistics from the Bank of Guyana reports to show there is sectoral growth. For one she has confessed the manufacturing sector is doing poorly. But these growth statistics do not mean a lot although they might excite some people enough to place them in an election year party manifesto. What really matters for transformation to higher future living standards for the masses is not a one year rate of growth from your low productivity sectors that are susceptible to diminishing returns.
More important is the weight of new high productivity and value added sectors that matter to sustain long-term growth. Furthermore, given the latter point, I will be looking very closely at future Guyana GDP growth numbers to see if we are now being fed with high growth from diminishing returns sectors that have passed their prime decades ago. But in the interim, I understand we are coming from a very low period of growth performance from 1998 to 2005. Let’s see if future spectacular growth numbers would be wringed from the old sectors.
Ms Daly quoted an interesting per capita income number of US$1214.3. Is this number in constant or nominal terms? It is highly suspicious as it suggests annual compound growth of 10.9% over 16 years. Now, I think the Guyanese public understands the level of GDP did not grow at such a spectacular compound rate since 1992. The only way this could occur is if there is significant shrinkage of the population as per capita income is national income (the income counterpart of GDP) divided by the population. This shrinkage of the population cannot be a good thing for the long-term even though migration generates short-term remittances that benefit the foreign exchange market.
In closing, I do not doubt several social indicators have improved on the very low levels as at 1992. However, it would make interesting comparisons if the PPP starts to look at small open economies like Mauritius, Botswana, Suriname, Barbados, The Bahamas, Belize and others as their performance benchmark.
Tarron Khemraj
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