Bucking the tide

Aug 05, 2008 Editorial

In the Jamaica Observer’s editorial that took President Jagdeo to task over his stand on the EPA with the EU, it was claimed: “President Jagdeo, trained in the Soviet Union, believes in the developmental state, which plays the leading role in economic development.”

This was rather ironic in light of the overwhelming evidence that the Jagdeo regime has continued faithfully in the tracks of his predecessors since the eighties to almost banish the state from playing any direct role in his country’s quest for growth and development.

The regime has quite slavishly followed the dictates of the World Bank, the IMF, and, most recently, the WTO, which all prescribe the supremacy of “liberalisation of markets” and the miniaturisation of the state’s role in fostering development.

As to President Jagdeo’s actual “beliefs” on the matter, we are not privy to the contents of his mind, but from his actions we can only conclude that the “development state” is furthest from it.

What the Jamaica Observer, and possibly President Jagdeo, has overlooked, however, is that, in eschewing the activist state, we might have thrown out the baby with the bath water.

The fact of the matter is that in every country that has managed to pull itself out of poverty since WWII, the state had a very crucial interventionary role to play.

These states, mostly the “Eastern Tigers”, used policy instruments — such as tariffs, subsidies and investment management — to become competitive in industrial products for export.

These instruments were supported by the vital role of the state to accumulate and deploy the capital for expansion of export-oriented industrialisation.

The state-led interventions, by utilising the discipline of the most brutal world market, consequently made the domestic private sector very competitive in those markets.

This strategy generated tremendous welfare gains from trade. The strategy, in a nutshell, was aimed at economic and sectoral industrial success, followed by strategic integration into the global markets to gain from trade, and then to reinvest the profit to explore new production-possibility frontiers.

The strictures of the “Washington Consensus” ignore this historical evidence: developed countries helped the growth of their industries by using at least three strategies: protection, domestic support and a proactive approach. There was the whole “infant industry” argument.

They could then accumulate critical mass for industrial growth, and organize the capital accumulation for productive investments, rather than the sheer waste on personal comforts, as is presently the case.

The Guyanese state has failed to play an entrepreneurial role to provide a vision and the necessary institutional arrangements vital for industrial growth and development that emanate from international and domestic trade.

The liberalisation that is at the core of the strategic orientation of trade policy since the late 1980s has not delivered on its promised goals.

Despite becoming a poster boy that regularly receives glowing reports for achieving “macro-economic targets,” we are still stagnating, with growth averaging less than one percent in the last decade.

For our sustained economic development, the role of the state is much more critical than the current trade policy envisions. A fundamental revision of the strategic orientation of our trade policy is demanded.

A special focus must be given to those parts that impact on the prospects of export-oriented industrialisation.

Though the WTO commitments and IMF/World Bank conditionalities have reduced our necessary national policy space, we are arguing that the state still has a vital role to play.

We have to rethink the reflexive dismantling of vital trade policy instruments in the name of autonomous liberalization. We have to create innovative strategies that utilise the state in the role of a public entrepreneur.

We need institutional innovations, both for support and co-ordination in managing export-oriented industries to execute industrial policy, aided by trade and supporting social policies.

Our banking system certainly has the liquidity. Unfortunately, they have not demonstrated the capacity to intermediate that liquidity into sustainable development.

We understand that we will need a clean Government to ensure that the state is not captured by vested interests, and that the present circumstances are not fortuitous.

But it is our hope that, cometh the time, might lead to the coming of the prudent leader that can lead us out of the wilderness of our economic stagnation.

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