It is important that we consider some the findings of Guyanese researchers and academics in the past decade. If we are to improve the economic foundations upon which the healing of our social wounds can remain sustainable, we must examine ways of creating optimum conditions that promote the livelihood of people, especially in light of preparing ourselves for the oil and gas economy. These research might have long and at times boring titles, but they are trying to understand some of the main constraints that caused Guyana to under-perform relative to her peers such as Barbados, The Bahamas, St Lucia, Antigua and Barbuda, Mauritius, Botswana, Singapore and several other small economies since 1965.
A Developmental Civil Service
Jocelyn Williams of the University of Guyana emphasizes structure of production as a hindrance. Her thesis holds that what a country produces determines its ability to innovate and benefit from knowledge spill overs from one sector to the next. Collin Constantine has extended this research in a very important way by studying how income inequality interacts with economic structures to produce poor economic outcomes. Both Williams and Constantine advocate some form of industrial policy, but not classic state planning. They both understand that a developmental civil service would be crucial for implementing these policies. I agree.
I have also published three papers on this issue since the 2008. One of my early works looks at the role of the financial system in intermediating funds from savers to investors. Essentially, I argued in a 2008 paper in Social and Economic Studies that the economy is not large enough for the financial system to spread out the cost of making loans, which includes information cost associated with monitoring and screening borrowers. Screening and monitoring are important because banks don’t have the same information as borrowers, something we call the asymmetric information problem. This monitoring and screening then helps the banks with getting back their moneys, thereby minimizing non-performing loans. To recoup these costs, commercial banks charge high interest rates that unfortunately curtail some investment and economic growth. The banks are not greedy; they are performing within the constraint of economic laws.
A New Constitution
In later published works, I looked at how strategic pro-ethnic voting results in an underdevelopment trap. I used the canonical model from game theory known as the prisoners’ dilemma, which is a game that shows what happens when distrust results in non-cooperation. It is in the interest of one person or group not to cooperate if they are uncertain the other side will cooperate. They are not bad or racist people; they just don’t have an institutional mechanism such as a constitution that enables them to trust and cooperate at the group level.
I then explore using some simple mathematics how cooperation could result from a new constitution, even under the prisoners’ dilemma problem. I have written in Development Watch column in Stabroek News on some specific constitutional changes that could be introduced to enhance cooperation and electoral competition. Electoral competition is necessary if we are going to have a vibrant democracy with swing voters. I will further develop these proposals in a later column for Heal Guyana.
Finally, I published another paper in 2015 that argued that for us to understand Guyana’s relative economic performance with respect to her peers, we have to go back far in history when Dutch settlers around 1760 made the decision to drain the coastal region for agriculture. They preferred coastal settlement even though it required draining swamps to create a polder system of agriculture. Of course, the settlers could take this path of action because they were able to enslave Africans who dug the canals on which we still rely today. Our negligence has caused us to fill up many of them, thus accounting for increased flooding.
The polder system, however, requires heavy cost of maintenance since the canals are soon covered by tropical vegetation and clay soil if not constantly maintained and cleaned. GuySuCo has done this for decades, but at a heavy financial burden partly explaining why it is costly to produce sugar in Guyana’s polder system versus doing same in the higher lands of Brazil, Mauritius or Cuba.
Building a road network on the polder system of canals means more funds have to go into road construction and there has to be a bridge across each canal for linking the roads. Filling up all these canals is also not an option since there will be more flooding and mosquitoes. This adds cost of infrastructure. Other countries that did better than Guyana – Barbados, The Bahamas, St Lucia, etc. – in development indicators do not have to contend with these conditions. The high cost of infrastructure is coupled with a relatively small Guyanese population. This means the per capita cost of infrastructure is going to be very high, thus impacting negatively on the country’s export competitiveness.
As Guyana contemplates becoming an oil and gas economy, it would be helpful for political leaders, as well as public influencers to consider the constraints raised by these academic research. These constraints will have to be addressed as they contemplate restructuring the economy, in ways that create real opportunities for our population to thrive on a fundamental level.
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The views expressed herein are those of the Author; they do not necessarily reflect the views of Heal Guyana or its Executives.