Model for Growth

Oct 03, 2010 Features / Columnists, Ravi Dev

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In addition to wallowing in personalities, we hope that some of the politicians will spare a thought about, among other pressing issues, models for generating more robust growth of our economy. While there’s no question that we’ve stabilised our ship, it’s about time that we innovate away from the World Bank’s conditionalities under which our economy was mannered, er, managed for so long. We cannot focus only on macroeconomic equilibrium at the expense of economic development – this is the peace of the dead. The World Bank’s prescriptions may be necessary but certainly not sufficient to do the job, for us.
And that’s the point right there – “for us”. There is no one shoe that fits all. The World Bank, or anyone else, can’t just say that the “free markets” alone must be used to fuel our development. There aren’t anything as pure “free markets” alone running any economy. In every country, production and productivity are functions of the right mix of three institutions – the market, the state and the community.
Markets function through competition using prices as the mechanism to coordinate our production and consumption – they are based on self-interest. It is very efficient mechanism from a production point of view – people will produce to make a buck. But one of the premises for its success is there should be enough people willing to take the risks etc to make that buck (entrepreneurs). What do we do when there aren’t- as is certainly the case in Guyana? Hold our breath?
The state also coordinates our activities – through command and coercion. It is supposed to be acting for the common good. The state passes laws and makes regulations that affect our economic activity every day. The VAT exempts items that are considered essential. Cars on the other hand are taxed extravagantly. The focus on agriculture by the government has guaranteed our food security. The Skeldon investment was intended to secure sugar as the Amaila Falls project seeks to do for energy. In the modern world we can’t wish the Government away.
Our communities also structure our activities – through voluntary cooperation engendered by close personal ties and relationships. They work through trust. (This is one on the reasons for the increases relevance of ethnicity.) This has been a most neglected aspect in our development efforts – especially when we have such a glorious history starting from the Village Movement initiated by African Guyanese after Emancipation.
Let’s take the rice industry. A crucial feature of rice cultivation is the control and allocation of water. In Asia where there has been intensive cultivation for centuries, the communities have evolved intricate local, non-government sanctions and rewards that ensure the most efficient use of water. Compare this with our situation in Guyana where farmers downstream are never willing to wait for water, in their turn and they either surreptitiously open regulators or “talk” to their friends in authority. Everyone ends up frustrated and costs go up when they have to pump water. China and Vietnam’s ability to produce rice at one quarter of our costs isn’t just due to low labour costs! We have to emphasise this mechanism of cooperation.
The task of governments is not to stand on dogmas but to tailor the right mix of these three institutions to suit their concrete conditions. The Western countries developed through a high level of dependence on markets but let us not forget that their governments and communities played and continue to play crucial roles. They took a couple of hundred of years to get where they are. Japan, on the other hand, because of its unique societal values, depended much more on the role of the community and trust, all mediated by the state. Their development to catch up with the West took one century.
After WWII, we have seen that Taiwan, South Korea and Singapore take only a half a century for their development to catch up: China only three decades. None of them not relying totally on market mechanisms: they determined their unique institutional mix of markets, state and community to coordinate their economic activities. This is what we have to have the courage to do in Guyana.
This pragmatic approach to development is an indication that 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. Look where they are today. Their Governments, as catalysts, set strategic goals and then did what was necessary too back into them. They 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. The Chinese took this approach to a new level.
In summary, markets may successfully orient individual agents to allocate resources efficiently but they are not sufficient to coordinate individual actions over a long period of time and, most importantly for our purpose, towards desired social goals such as specified rates of growth. Market orientation is not sufficient to generate market coordination toward collective prosperity. This is where the catalytic function of the State working through communities comes in. After all, collective prosperity is why we have a state to begin with, isn’t it?

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