For stronger state leadership

Jul 26, 2009 Features / Columnists, Ravi Dev

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One of the enduring refrains in this space has been the need of the administration to become more directly involved in the economic development of the country. We had called for the creation of a “Catalytic Entrepreneurial State” (CES). Such a state would first, and obviously, have to be a very responsible state, with a strong commitment to the development of all communities and simultaneously working assiduously to increase its legitimacy. The former process would greatly help to achieve the latter goal. In light of the President’s proposal of a Low Carbon Development Strategy (LCDS) we repeat our call. Left to the private sector alone, even the new direction will not provide the robust growth rates necessary to make a significant impact on our standard of living.

We understand the background to the government’s reluctance to adopting a more dirigiste approach. Guyana, as with many other third world states, had a disastrous experience with state involvement in development during the ‘70s and ‘80s and this has obviously soured the IMF/World Bank’s enthusiasm for such policies. The flawed premise of this fear, however, is to assume that the form of the state itself has to be constant, as it is used to perform large and more varied tasks.
The Guyanese state has always been a very centralised one and this condition was an integral part of the problem of retard development, even before the seventies. Evidence from across the world, however has shown that a strong state does not have to be a centralised one. Federalism can address the fear while delivering the needed performance. The functions of the state can be distributed into multiple layers and segments so as to deliver a greater likelihood of success of development goals.

Even with the unitary state, not all state actions are negative and in fact there may be the necessity for government interventions when the free market or community co-ordinating mechanisms are stymied for one reason or other – market failure or community breakdown. This is clearly exemplified by the fact that since 1997, the Guyanese banks have been awash with money and yet cannot translate that into investments, creating a liquidity problem. The actions of the developed countries in the wake of the world financial crisis have confirmed our thesis. The expansion of the role of the state, however, does not mean that Guyana has to repeat the mistakes of her past.

Guyana’s development plans during the ‘70s and ‘80s were driven by State ownership of production (State Capitalism) which destroyed the market and community forces necessary for competition and other co-ordinating activities necessary for sustainable growth. The socialist dogmas undergirding the then development policies were inimical to the free market and self-reliant communities and spawned a culture of special interests seeking to benefit from the state policies (rent seeking).
The World Bank is insisting that Guyana should learn from its experience as to the downside risks of a large governmental role in industrial policy and act to minimise those risks. This perspective is not unreasonable but they cannot ignore the fact that no country in the modern era has risen out of poverty on loans from World Bank/IMF and without directed government intervention.

The PPP Government evidently agrees with the World Bank’s position that providing a stable macro-environment will attract enough investment-high economic growth. Unfortunately, after analysing the methodology used by other countries were able to create investment opportunities and how these were realised in a sustainable manner, the prospects do not look good for Guyana and its ethnic relations. Apart from the fact that there may be other, non-economic, factors inhibiting investment such as political instability investment and the consequent economic growth is not just a question of creating institutional environments, but rather one of creating institutional arrangements.
Theory must be guided by successful practice. Even theory supports this position. The efficacy of markets depends on the presence of markets for all contingencies, i.e. that markets are complete. The important point is that when some markets are missing, they will not clear and the resulting allocation can be improved on.

The history of Europe and the US and the Far East has shown that the state played a major role in their development, “by mobilising savings, providing infrastructure, shaping sectoral priorities, and in many cases forcing individual agents to engage in market-oriented activities through taxation.” It is rather ironic that the World Bank and IMF have virtually eschewed any meaningful role for the state in achieving desired growth rates, in the face of such evidence. The litmus of proposed activities would be for the state to implement policies that strengthen market and community co-ordination to promote growth and development.

A pragmatic approach to development is necessary because the cause of our underdevelopment is to some extent strategic rather than structural. Korea and Singapore were right where we were fifty years ago, if not behind us, not only statistically but structurally. Their Governments, as catalysts, identified and set strategic goals and then did what was necessary to back into them. Take for instance one reason why the “import substitution strategy” model of development – the last round of Government intervention – practiced by so many countries, including Guyana, failed. They assisted and protected domestic industries that became inefficient and non-innovative since the market forces fostering competition were destroyed.

Korea and Singapore, however, followed the Japanese example and 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, 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.

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