OVERSIZED GOVERNMENT OR STUNTED PRIVATE SECTOR?

Jan 18, 2009 Features / Columnists, Peeping Tom

---

I normally do not pay much attention to international surveys which rank countries according to their degree of openness and transparency. A whole army of these surveys popped up after the triumph of liberal capitalism in the nineties, aimed at assessing how far countries have come in opening up their economies.

These surveys are used as benchmarks to pressure countries to liberalize their economies. We all know the consequences of this liberalization which has been pursued with too much haste and without consideration as to internal realities of individual countries.

The gap between rich and poor, already exaggerated in the pre-liberalization process, becomes far more skewed. Infant industries in countries such as Guyana have all but been wiped out and there has been increased penetration of investment and trade to the West.

These surveys are not intended to serve the interests of poor countries. They are intended to facilitate the increased penetration of investment from the West. I therefore treat with a pinch of salt these surveys about the degree of openness of countries. The latest such survey has told us what this column and others have been saying for a long time: that the government is bloated.

Of course, the measure that the survey used to come to this assessment is the total government spending relative to the Gross Domestic Product. Since this is seen to be high, we are told that what we have is an oversized government in Guyana.

If you however look at the survey from another angle, a different picture emerges. Since the survey compares the level of governmental spending relative to overall GDP, it can equally be said that what Guyana has is an undersized private sector, which despite the liberalization which has taken place since 1989 has failed to grow into an adult. In common parlance we can say that we have a stunted private sector.

In countries like Guyana seeking to emerge as a middle income country, the private sector cannot be the engine of growth. This has been a fundamental mistake of the Hoyte administration which has been continued onto this day by the PPP.

In a poor country like Guyana, any approach which sees the private sector as the engine of growth is doomed to failure because the private sector in Guyana is too underdeveloped to become the engine of growth. To ask the private sector to become the engine of growth is to assign to it a role beyond its limitations at this stage of economic development. We have a small private sector in a small economy.

To ask the private sector to become the engine of economic growth also flies in the face of economic theory and experience. The economies of the Asian Tigers are instructive. In the sixties, these were countries that were poor like Guyana.

But while many misguided leaders preached self-reliance and placed restrictions on trade, these Asian Tigers pursued an export-oriented economic strategy.

It was the State in those countries which made the investments that boosted the productive capacities of these countries in their early years. The State played an intervening role in the economy, especially when it came towards investment, and this allowed for these countries to have a rapid take-off.

Guyana therefore should not be unduly worried about being accused of having overgrown governmental expenditure. In fact, instead of only being able to absorb US$100M of public investment each year, we need to ditch this unsubstantiated idea that we have problems with absorptive capacity and move towards increasing government spending with a bias towards labour intensive production.

Professor Clive Thomas made an important point recently. He looked at our household spending as a percentage of overall expenditure and found that while it is not as high as say in the United States of America, it is still a significant fraction of overall national expenditure.

This clearly predisposes towards an investment strategy which benefits large numbers of workers so that disposable incomes can increase at a rate that will boost the turnover in the economy.

This need to spend more should however avoid the temptation of increasing the size of the bureaucracy. We have serious problems with the bureaucracy in Guyana both in terms of size and in terms of remuneration.

I will deal with these two problems in a subsequent article but I remain convinced that there is an urgent need for Guyana to examine closely the size of its bureaucracy and to take immediate steps to return to the vision of a lean government because it is really too much of a drain on public finances to continue to carry such a bloated and oversized bureaucracy.

---

---