Economic diversification – a means to cushion an economy against exogenous shocks

Jul 19, 2020 APNU Column, Features / Columnists

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(A review of David Granger’s Guyana’s golden age: the diversification of British Guiana’s economy, 1880 – 1930.)
Guyana’s golden age: the diversification of British Guiana’s economy, 1880-1930 examines, in great detail, the economic diversification which occurred in British Guiana following Emancipation in 1838. This process reached its apogee between 1880 and 1930 and it is this period which the book’s author, David Granger, refers to as ‘Guyana’s golden age’.
The combination of concurrent changes –the expansion of sugar production in Brazil and Cuba and its extension in Asia; the recovery of beet sugar production in Europe after the Napoleonic Wars; agitation for free trade and the elimination of protective tariffs by commercial and industrial interests in Britain; and the Emancipation of enslaved Africans in the British West Indies – led to the collapse of sugar prices, undermined the profitability of sugar and triggered the abandonment and sale of several plantations.
The need to pay cash for wages to Portuguese and East Indian indentured immigrants from 1835 and 1838, respectively, even prior to African Emancipation, and the extension of free villages along the coastland bought about the establishment of a money-based economy. Business transactions and more diversified enterprises in the local market – including banking, commerce, manufacturing, wholesale and retail trade and, later, rice and balata production and bauxite, gold and diamond mining – had to be facilitated.
Guyana’s golden age: the diversification of British Guiana’s economy, 1880-1930 traces these transformative changes in the economy which, prior to Emancipation, had been dominated by sugar production. Economic diversification did not end sugar’s dominance, however. ‘King Sugar’ retained its paramount position in the Colony’s economy. It would continue to do so beyond the end of the era of economic diversification.
Even the advent of large scale bauxite mining could not displace sugar’s pre-eminence in the economy. Sugar still accounted for 70 per cent of exports and remained the largest industry and employer of labour by 1897. Sugar would remain the mainstay of the economy right through to the first two decades after Independence.
The economic differentiation which took place in the century following Emancipation, however, can neither be discounted nor can its significance be diminished. British Guiana’s economy at Independence in 1966, however, was noticeably different from that at Emancipation in 1838. It had become more diversified. It was dominated by sugar, indeed, but less preponderantly so.
This book highlights this central but transformative process. Granger traces the sources of this economic diversification to a number of factors, following the emergence of a free peasantry after 1838. These included:
– changes in population triggered by the introduction of large numbers of indentured immigrant labourers;
– changes in the constitution in 1891 which relaxed the almost absolute political stranglehold of the planter classes;
– changes in society, including the introduction of compulsory primary education in 1876; and
– changes in technology which catalyzed new sectors and increased the demand for commodities.
This book is of fundamental relevance to understanding Guyana’s economic history and particularly the economic differentiation which took place after Emancipation but it is by no means singular in this endeavour. Among the raft of sources consulted in the researching of this book is Walter Rodney’s History of Guyanese Working People 1881-1905. Rodney had observed that peasant farming had contributed only in a small way to economic differentiation. He pointed out that “…the elements of economic differentiation included the consolidation of the timber industry, the pioneering of diamond mining and the revival of the gold industry.”
The book is enriched by the scrupulous research undertaken by its author. He has mined a treasure trove of authoritative and scholarly sources – including George Beckford’s, Caribbean Rural Economy, (1975); Rawle Farley’s The Rise of the Peasantry in British Guiana (1954); E.J. Hobsbawn’s Industry and Empire: An Economic History of Britain since 1750(1968); Michael Moohr’s, The Economic Impact of Slave Emancipation in British Guiana (1972); and Walter Rodney’s, A History of the Guyanese Working People, 1881-1905 (1981).
The republication of Guyana’s Golden Age: The diversification of British Guiana’s economy 1880-1930 is timely and its lessons are timeless. First published as an essay in the Guyana Historical Journal, Vols. IV &V, 1992-1993, it re-emerges as a monograph at a critical juncture in the country’s economic history. Petroleum production commenced in December 2019, exciting national passions and expectations, as was the case with the discovery of gold and bauxite.
The book serves as a sobering reminder that commodity production is subject to fluctuating fortunes. Economists and others have already begun to caution about the dangers of resource curse and ‘Dutch disease’. The book forewarns of the dangers of concentrating economic diversification around primary commodity production. The book is a reminder, also, of the inherent benefits and risks associated with economic diversification, principally into other natural resources. Granger argues that:
A country, in diversifying its economy, could avoid sharp or sudden changes in revenue which might accompany the fluctuations likely to occur in producing for a single market, such as the United Kingdom. Equally, it could achieve a real improvement in the distribution of income among the majority of the country’s people and make a permanent impact on their livelihood.
The book’s salient lesson is that the discovery of a new and potentially lucrative resource does not necessarily make an economy more resilient. Commodity production is subject, almost as a rule, to the vagaries of the international commodity markets. Guyana is now only in its first year of petroleum production but, already, has been subjected to the effects of a decline in global oil prices brought on by the COVD-19 coronavirus pandemic, for example.
A second lesson which emerges from the book is the danger of not adding value to commodity production. Guyana’s concentration on primary production, during and after it ‘golden age’, has subjected the economy to cycles of growth and recession. Modern economic diversification, therefore, must include value-added production to yield higher valued exports and to build a more resilient economy.
David Granger, now Guyana’s President, recognizes this. He makes reference, frequently, to the fact that Guyana’s economy has traditionally been reliant on the ‘six sisters’ – bauxite, gold, fish, rice, timber and sugar– and laments how these industries have been sources of economic vulnerability. Granger, as President, has pledged to continue economic diversification and to add value to his country’s abundant natural resources. He appreciates, no doubt from his own research in writing this book, that economic diversification is not an end to itself but a means to cushion an economy against exogenous shocks.
Guyana’s Golden Age: The diversification of British Guiana’s economy, 1880-1930 contributes to our understanding of the process of economic change which can be triggered by demographic, economic, geographic, political, international and technological factors. While British Guiana’s economy remained reliant on external developments and while national output still depended primarily on sugar, economic diversification was a necessary adjunct for the emergence of modern economy. It still is.

 

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