Government for growth

Apr 15, 2012 Features / Columnists, Ravi Dev

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The budget is being debated – but it’s been more like nitpicking from the opposition benches. Most disappointingly, they have actually called for focusing on the “Poverty Reduction Strategy Programme” (PRSP). This represents a failure of vision. Rather than ‘reducing poverty’, why not talk about ‘creating wealth’? And it’s not just splitting semantic hairs. “Reducing poverty’ is redolent with the zero-sum approach of redistributing ‘wealth’ from a fixed pie and can only lead to stagnation – the equivalence to economic death. We can achieve only that which we conceive.
Commendably the economy has grown 5.6% last year and is predicted to grow this year by 4.1%. But we are starting from such a low base (still just above Haiti in the western hemisphere) that even if the gains were not nibbled away by inflation, they really do not make a seismic improvement in our standard of living.
The problem for the Minister is that given the imposed neo-liberal economic model he operates within, there is very little room for him to generate quantum leaps in the growth rate. In his model, the core tools available are monetary, fiscal and exchange rate instruments – but they can only be used to satisfy some arbitrary “macroeconomic fundamentals”.
The premises have all trenchantly critiqued from a host of angles. With the first option, the central bank lower interest rates on its T-bills and also reduce the statutory reserve requirements in order to encourage banks to up their lending. Increased money in the hands of businesses and consumers would then supposedly spur spending and demand and ultimately, growth.
Hasn’t worked here. The fears of spurring inflation are reasonable – but only because the “easy” money would be going into consumption and not production. We have long pointed out that in an underdeveloped economy such as ours, inflation rates, even in the mid-teens range, would not be dangerous – once the more accessible credits are directed towards businesses that invest in productive sectors that generate exports and foreign exchange. But this means, of course, that the government would have to craft and deploy an industrial policy extracted from the insights of, say, the National Development Strategy or the LCDS.
Our businesses are just not investing – even where there are obvious opportunities. The Government has to throw off the yoke of the neo-liberal dogmas (and of opposition harping on ‘crony capitalism”) and become more involved in public-private ventures. The present players are simply too parochial and inbred. The forestry sector has actually declined by 5.3% when the world is dying for high-end wooden furniture. We offer a proposal we first put out a decade ago. If we do not have the wherewithal to execute a full-blown industrial policy, now is the time to seize the opportunity available in our forestry sector.
The immediate past administration has done a commendable job of highlighting Guyana as a “green” nation in the forefront of forestry conservation and we can piggyback on that initiative that is sure to continue to rise in global consciousness.
We should create an industrial cluster that specialises in the manufacturing of “green” furniture that would distinguish itself from the mass-produced ‘fake wood” offerings that have flooded the markets everywhere. Such a cluster would have manufacturers, timber suppliers, kilns, design and market-research companies, craftsmen, designers, exporters, shippers etc. all in one location, to benefit from the synergies of propinquity. This is simply an example of one strategic opportunity in an industrial policy.This is the way Japan with MITI and South Korea etc. identified strategic opportunities and exploited them in the early days. After the ventures become established the government can decide as to the level or nature of its involvement.
In the exercise of its fiscal prerogative, the state can reduce taxes while increasing governmental spending – while, of course, always running the risk of increasing the fiscal deficit. The first exercise would place more money into the hands of consumers and businesses and theoretically increase spending in the economy. This is what the opposition is pushing for – it’s populist but not optimum. Experience has shown that lump sum disbursements are more effective in fostering economic growth than the small increases in income consequent to tax cuts.
Over the last two decades, government spending on infrastructure and social services has been the major investment in the economy – and creating deficits – making it absolutely necessary for high growth to be kick-started via an industrial policy-driven model. The governmental spending in that vehicle will create a greater number of jobs and create a virtuous cycle in generating increased jobs, taxes and foreign exchange. Fiscal policy, therefore, must follow monetary policy, in being directed towards an industrial policy to be of any help.
Finally, the foreign-exchange rate policy option did not offer the Minister any help in stimulating the economy. Our major products – rice, sugar and gold are all bullish and bauxite’s fall is demand, not price, driven. No stimulus opportunity here.
We commend, therefore, the urgent adoption of an industrial policy by our government. We need not just a stimulus, but a sustainable engine of growth.

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