Infrastructural spending is no silver bullet

Apr 05, 2022 Features / Columnists, Peeping Tom

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Kaieteur News – Jagdeo does not get it! It is not good enough to merely indicate that all Guyanese will benefit from the country’s oil wealth.
Nor does it suffice to point out that all Guyanese will benefit because government will invest in infrastructure and education and health. Jagdeo has to be able to make the case that such investments will indeed redound to the benefit of the Guyanese people.
The Guyanese people by now ought to realise that they will benefit so long as the economy expands. The economy will grow even if it is in auto pilot; it will grow even in the absence of pro-growth policies, as the five years of the APNU+AFC proved.
So Guyanese will benefit regardless of what the PPP/C does. But what Guyanese want to see is not only a sudden and steep increase in their standard of living but also a decline in inequality.
Jagdeo is pressing for infrastructural development. But who has benefited the most from the past 30 years of massive investments in infrastructure. The contractor class has been the prime beneficiary of government’s infrastructural development spending.
True, roads have been built, and bridges constructed. But for every road and bridge, there is another which has gone into disrepair or which remains unattended.
Jagdeo is supposed to be an economist. As such, he ought to know by now that while there is high correlation between infrastructure and growth, that a 2020 study done by the World Bank indicated that whether or not infrastructure boosts growth depends on the stage of development of the country.
At present government spending on infrastructural development continues to boost the growth of the construction sector and its contribution to Guyana’s Gross Domestic Product (GDP). Indeed, were the government to halt infrastructural spending, the construction sector’s contribution to national output would be diminished.
The experience with public spending in oil economies in developing countries should forewarn Guyanese of the danger of the approach which the present government is taking. The international economist assessed that several countries had embarked on ambitious investment projects between 1975 and 1978, after oil prices spiked in the early 1970s and created a windfall.
He observed that in all cases, GDP growth per capita worsened after the big push of oil money into the economy. He noted that growth per capita dropped sharply in Trinidad and Tobago and Ecuador, whilst output per capita even dropped in Venezuela, Nigeria and Bolivia in the period following the investment booms.
In the case of Venezuela, he pointed out that the country spent 40 percent of its windfall on public investment. But we do not need to go as far as looking at the experience of other countries.
But Guyana’s own experience is instructive. Despite the billions of dollars which have been pumped into public infrastructure, Guyana hardly produces anything which is globally competitive. The country is still predominantly a primary commodity exporter. Oil production is not going to change that.
Most of the studies on relationship between infrastructure and inequality establish a positive link between infrastructure and reduced inequality. But in Guyana, the evidence is not as clear-cut.
As was reported in last Sunday’s edition of this newspaper, an international economist has pointed to increased inequality in Guyana. He noted that the Gini index (a useful proxy of inequality) increased from 46 percent in 2006 to 52 percent in 2019. Yet there was significant infrastructural investment by the government during this period. Despite this investment, the gap between the rich and the poor widened.
People expect to benefit from the oil revenues. But they are also unrealistic. No one expects that in a neo-liberal economy that everyone will benefit equally. Obviously some will benefit more than others. But this should not translate to mean that the poor will get a few mints while the rich will get a bag of gold.
And this is the danger of a mad rush to spend the oil revenues on public infrastructure. There are no guarantees that the buccaneer class, which is aligned to the PPP/C, will not cream off most of the benefits, leaving only the crumbs for the poor.
But the leader of the AFC warned about another danger of infrastructural investment. He mentioned that it is one of the sectors in which corruption is rife. Corruption can lend itself to the dispossession of the working class.
There can be no comfort in Jagdeo’s promise that all will benefit. Unless he can convince this nation that the poor will benefit more than the oligarchic class, he should not be given the licence to proceed with his government’s transformative infrastructural agenda. Such an agenda can spell disaster for Guyana as it has elsewhere.
Jagdeo’s words, therefore, that all Guyanese will benefit from the oil sector will not convince anyone that the poorest of the poor will be lifted out of poverty or that inequality will be reduced.
(The views expressed in this article are those of the author and do not necessarily reflect the opinions of this newspaper.)

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