Guyana and the wider world - Concluding explanations of economic stagnation (1997-2006)

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Guyana and the wider world
Concluding explanations of economic stagnation (1997-2006
Dr Clive Thomas
Stabroek News
Sunday, May 27th 2007

So far six classes of explanations for the economic stagnation after
1997 have been considered in this column, namely, governance,
institutional quality, historical factors, geography and environment,
macroeconomy, and policy errors. The remaining four categories:
infrastructure, external considerations, the socio-political
environment, and cultural and behavioural norms and practices are
discussed this week.

Infrastructure

When I discussed the category 'geography and environment,' I had
stressed the roles of difficult topography, location in the tropical
rainforest zone, and small population size as impeding growth and
tending towards economic slowdown. Guyana's small GDP, relative to the
capital outlays required to put in place and maintain an efficient
economic, social, and physical infrastructure is undoubtedly a huge
constraint. The physical demands for roads, bridges, sea defences,
drainage and irrigation, electricity, telecommunications and such like
are an enormous strain on the economy. Indeed on a per capita basis the
country cannot afford self-sufficiency where its infrastructure is
concerned, particularly when taking into account also the risk of
weather shocks, and the threat of water-borne tropical rainforest-type
communicable diseases. These latter require considerable outlays not
only on preventative health measures (vaccines) but also the
regulation, surveillance and control of disease carriers.

Not surprisingly utility costs in Guyana have been among the highest in
the region. In turn this has increased the cost of economic activities.
Additionally, the present infrastructural works are generally fragile
and prone to regular breakdowns, thereby impeding production further.
Indeed the World Economic Forum (WEF) rates the infrastructure in
Guyana at 2.3 on a scale of 1-7, which gives it a global ranking of 104
out of 125 countries surveyed.

In the literature these infrastructural demands operate as a brake on
the economy, which becomes progressively binding as economic activity
is stepped up and increased usage of the infrastructure occurs. Like
its counterpart (geography and environment), this is obviously an
important set of considerations, but the truth is there are several
economies with equally serious constraints (small population and
national market, big geographic area, isolation, and lack of
territorial cohesion), which have had better growth performances than
Guyana. What we can say with certainty, therefore, is that while an
association exists between infrastructural constraints and the economic
slowdown, no line of causality has been satisfactorily established in
the literature reviewed.

External

considerations

As a category, external factors generally originate from the
fundamental reality that the Guyana economy is highly open,
specialising in low value-added primary export of natural
resource-based products, a substantial portion of which benefits from
preferential arrangements. These are presently under threat of
substantial erosion as liberalisation proceeds and the WTO agenda for
global free trade advances.

This dependence on foreign markets generates systemic instability
linked to global expansion and the world prices for natural
resource-based products. Thus the country faces simultaneously, the
explosive rise of oil prices and the disastrous decline of sugar
prices, as preferential markets are eroded. This produces adverse terms
of trade. And, the situation is worsened because the country's
ex-change rate is pegged to the US dollar, which currently is facing
uncertain times in European and Asian foreign exchange markets.

Altogether these circumstances are said to limit the country's capacity
to grow, thereby making economic slowdown an ever present reality. In
favourable situations this constraint may be temporarily relieved, as
when foreign direct investment or an improvement in the exogenously
determined terms of trade occurs.

Again, it can be pointed out that similar circumstances (or worse)
apply to other countries where sustained economic decline is not
evident. One cannot therefore generalise on the basis of Guyana's
specificity.

The one external dimension which affects Guyana more than any other
country is the brain drain. The international data show the country has
the highest per capita outward migration of tertiary trained persons.

Socio-political

This category covers a wide array of issues, about which most Guyanese
would consider themselves 'expert.' My task here is simply to highlight
a few of the more striking elements of the socio-political environment,
which it is said contributes to the continuing economic slowdown.
Heading the list is the country's well known racial and political
conflict. Because it has generated instability, violence, crime, and
banditry, it constitutes a humongous deflationary drag on the economy.

The pursuit of 'winner-take-all' and 'zero-sum games' in politics has
produced complaints against the government from groups about
marginalisation and non-inclusiveness. Regrettably, there are definite
periodic cycles to these events, which seem to centre on national
elections. The 2006 national elections did not, however, see a spike in
conflict.

Such circumstances are the product of a long history going as far back
as the brutal impacts of colonial institutions on the culture and
characteristic behavioural norms of the population. However, other
countries have had similarly brutal experiences including our neighbour
Suriname in the period of its military rule. Comparative studies of
Suriname and Guyana's economic performance show striking differences
and suggest that social-political factors do not provide sufficient
explanation.

Culture and

behaviour

Under this category I place a wide miscellany of factors, which cannot
be neatly tagged. These include a questionable work ethic; family
structures weakened by historically-shaped circumstances; and weak
social and cultural capital, as exhibited in weakness of community
togetherness, trust, and neighbourliness.

Specifically, it includes also such phenomena as the questionable
development of an entrepreneurial ethic and persistent risk averse
behaviour among Guyanese. Also, the incentive framework is said to be
heavily over-determined by the attraction of proceeds from crime,
rent-seeking behaviour, and nepotism. There is generally therefore, a
lack of business sophistication.

Thus the WEF ranks 'business sophistication' in Guyana at 97 out of 125
countries and rates it at 3.4 on a scale of 1-7. For innovation,' which
is supposed to cover the 'entrepreneurial ethic,' the performance is
worse. Guyana is rated at 2.5 out of the same scale of 1-7 and ranked
116 out of 125.

Next week I shall begin to assess these explanations and make some
suggestions.