New economic orientation for Guyana?

Nov 09, 2008 Features / Columnists, Ravi Dev

One of the points we have attempted to stress over the period we have been commenting on matters Guyanese, is that the “one shoe fits all” formula that defines the IMF/World Bank (IFIs) neo-liberal prescriptions was doomed to fail, even if the premises that undergirded those prescriptions were not flawed. And those premises have now been shown to be massively off target.

Take their injunction that the capital and financial markets and indeed the entire financial systems of the ‘globalising” world ought to be completely liberalised so that financial flows would be utterly unimpeded.

Can one imagine what the condition of the world would have been today if China and India, among others, had not resisted that piece of dogma? Fortunately for them, after the “one shoe fits all” prescription was applied in draconian fashion to disastrous ends to Thailand, Malaysia etc., after the “Asian crisis” of 1997-1998, they were determined not to be forced into the arms of the IMF ever again and resolved to build up their reserves to tide them over downturns of economic cycles.

They are sitting fairly pretty at the moment. We lucked out because our financial sector remained stubbornly stuck in their old conservative ways: no creative securitisation of loans and mortgages, much less formulae-driven derivatives here!

Our major frustration, however, was the IFIs obsession with “macro-economic fundamentals” at the expense of any meaningful growth in the economy.

The conditionalities, summarised as the Washington Consensus, which Guyana signed onto when they accepted the Structural Adjustment Program (the acronym “SAP” is quite apt) forced us into what was supposed to be a “golden straightjacket”, in the words of one enthusiastic supporter.

As I have pointed out ad nauseam, it was always something of a surprise to me that the government, led by a party that still reiterated its confidence in the analysis of Marx on the workings of a capitalist economy, went along so placidly. I assumed that it was a case of “patting the tiger’s head, when one’s hand is in its mouth”.

But as we worked our way out of our debt crisis and out of the IMF programs, one was hoping that the PPP would be emboldened as the IFIs programs were critiqued and criticised from within its very bosom.

Joseph Stiglitz is the most widely cited economist in the world today. He is a former chief economist of the World Bank and a Nobel Prize winner to boot but he has trenchantly taken the IFIs to task for their myopic vision on development. He was one of the earliest advisors to the Chinese government on its studied integration into the global economy.

Apart from his rejection of unbridled capital and financial liberalisation of economies, most importantly he disagreed with the IMF/World Bank on the role of governments in the creation of sustainable growth in developing economies.

In addition to many other mainline economists, he pointed out that the IMF/World Bank’s extolling of a non-existent role of government to create industries was based on a myth -even in the Anglo-Saxon economies where the neo-liberal ideology was honed.

In the early days of these economies, and certainly those of every “Eastern Tiger”, the government’s role was critical.

Every country that is now developed, in its early stages practiced some form of “infant industry” protection, while limiting foreign investment.

Yet we are being coerced into liberalising our trade and signing treaties that will result in us being flooded with products in markets that we might later have been able to compete in. The bottom line is that a level playing field leads to unfair competition when the players are unequal.

With this background, it was therefore quite refreshing to read the General Secretary of the PPP, Mr Donald Ramotar recently asserting: “Indeed, all the ideologues who in the past advocated that the state should stay out of the economy and allow the free market to operate in an unfettered way have now resorted to the state to prevent further disasters.”

While he was probably referring to the nationalisation of several financial institutions in the U.S., Britain and other western economies, we are hoping that his statement goes wider to include the legitimate role of governments to directly intervene in the economy and foster productive enterprises.

The PPP and its government have to accept by now that finance is not our major obstacle to the creation of new industries or the expansion of the old: our endemic excess liquidity “problem” rejects that thesis.

A pragmatic approach to development is necessary because the cause of our underdevelopment is to some extent strategic rather than structural.

We had proposed the creation of a “Catalytic Entrepreneurial State” (CES) that would go beyond the minimalist facilitative state pushed by the IFIs.

Japan and the Eastern Tigers explicitly tied assistance to selected private industries based on their commitment and ability to export. This strategic decision had two significant and faithful results that differed from the “import substitution strategy”.

Firstly, the assisted firms were subjected to the market discipline of the competition of international trade. This was the most intense competition and ensured that efficiencies and productivities had to be raised to the highest levels.

These firms not only couldn’t afford to be fat and lazy like the protected ones in Guyana in the ‘70s, they had to become world class – and they’ve remained world class.

The second benefit, of course, was that the exports brought in foreign exchange and there was no need to ban anything to save foreign exchange. They engaged in market orientation rather than market control.

We urge the PPP, to utilise the space created by the questioning of the old dogmas of those who actually control the IFIs to craft a strategy for growth more attuned to our reality.