Cronies in Control

Jun 29, 2011 Editorial

Over the past decade, the criticism of the economic performance of the present administration has grown increasingly strident. In several instances, some that have suffered from the effects of the policies, in frustration, have attacked the economic system in toto as the source of their problems, and in some cases failures. This is unfortunate and may be a case of throwing out the baby with the bath water.
In truth, if one were to examine the latter criticism, it will be seen that the problems do not arise out of the free enterprise system per se, but from the distortion of that system by an engrafted parasitic system of privilege and preferences, based on friendship and cronyism.
In Guyana today, there are many businessmen and entrepreneurs, both local and from the Diaspora, who have solid and feasible ideas and plans – and most importantly, the financing – to initiate projects that could develop the economy. But nothing happens. Why? They hit a brick wall because they do not have the right political or family connections. After awhile their initial energy and enthusiasm begin to wane and soon they give up. There are, after all, other locales that are more welcoming.
And if this system of cronyism continues, Guyana will never develop to a point where we will be able to eliminate the poverty in which we have been mired for all our history. And this is because cronyism encourages the favoured companies to become fat, complacent and unable to rival the efficiencies (and lowered costs) of companies forced to achieve their success through real competition.
For a country such as ours to move ahead on a sustainable basis, we need a political and economic regime that ensures and guarantees markets and opportunities such as credit allocation or land are apportioned in a fair and impartial way.
So we have the irony of some potential magnate who could open up Guyana, economically, dying on the vine, while some cronies of the Big Ones become obscenely wealthy as the rest of the citizens remain stuck in poverty.
The bottom line is that when the government intervenes in the marketplace, whether by price setting, direct control or privileging cronies, it is subverting the collective decision-making of that marketplace, and making it perform below optimum. In the end the result is an entity absolutely different from the free-market, and it is the small man and woman that suffer by bearing the “rents” that the intrusion extracts.
They also suffer when they see that no matter how hard they work, they have no chance of ever transcending their lot by owning a prosperous business of their own. To do so they would have to be inside the “charmed crony circle”.
Since in Guyana today we certainly do not have a socialist or communist government, with the extent to which the government has intruded into the economy through cronyism, it would not be out of place to describe it as fascist.
All three systems abjured the combined judgment of the marketplace to allocate resources for production. In Guyana, in those instances where a company outside of the crony network – or perchance those that preceded the incumbents – might have resources, regulations are interpreted in such a way as to make them compliant to the whims of the administration. The same debilitating and costly inefficiencies are introduced.
While there has been no study as yet on the effects of cronyism in retarding our economic growth and our progress out of poverty, the correlation and causation between cronyism, corruption, and reduced economic performance in several other countries has been robustly analysed and established by a number of economists who have rigorously examined the phenomena from a variety of perspectives.
In every case it has been demonstrated that while there might be some economic growth in the short term, if the regime does not reform itself to allow a free entry of investors and entrepreneurs, the economy eventually deteriorates in its competitiveness. Most insidiously, to maintain its rule, the regime becomes increasingly authoritarian.

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Cronies in Control

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