The Destruction of the Nation’s Productivity

I support the basic idea of Mr Rajendra Rampersaud’s letter on total factor productivity (SN June 15). I cannot argue against Mr Rampersaud’s letter, except to note that I have some technical differences with respect to what can determine per capita income growth in the early stages of a country’s development. Indeed, growth can result from natural resource extraction in the short-term without any significant technological and managerial progress, which TFP growth implies. However, in the long-term, as my friend Rajendra argued, income growth results mainly from higher quality restructuring of the economy. In other words, economic progress will eventually stagnate for any society which follows the strategy of extracting raw materials and selling to the rest of the world.  Should Mr Ramotar win this election, I hope Rajendra would be hammering home this point to the new President because of how fundamental it is. This type of discussion has been sorely lacking in the PPP since 1992. I went to Accabre in 1992 and not a single lecturer, from Dr Cheddi Jagan to Dr Henry Jeffrey, mentioned this point.

I have made the exact point raised by Mr Rampersaud several times in previous Development Watch columns and letters to the press (for example see my letter on science policy SN, July 8, 2009). In my recent academic paper “Elected Oligarchy and Economic Underdevelopment: The Case of Guyana”, I argued that one of the channels through which the Jagdeo oligarchy retards economic progress is the destruction of the nation’s TFP.

So what is TFP? It is an aggregative measurement of how efficiently an economy or society is utilizing its natural resources, its people (or human capital), investing in physical capital (roads, bridges, power plants, IT capacity, factories, ports, etc), educating its people and maintaining the rule of law. TFP is therefore a measurement of how efficient the society is at employing its assets and resources. It signals technological progress and public and private management capabilities. Education, engineering, mathematics, the sciences, the arts, democratic freedoms, finance and the rule of law are all fundamental to TFP growth in the long-term. It is TFP growth which allows a nation to circumvent the natural resource curse. As is generally acknowledged in the literature, Trinidad and Tobago and Norway are the two countries which have escaped the oil resource curse. Botswana has also done quite well with diamonds. Otherwise it is difficult to find other countries which have achieved a relatively high level of development with only natural resources. I shudder to think what will happen to Guyana if the present Jagdeo oligarchy finds oil.

My friend Rajendra wants us to decipher some of the root causes for the negative TFP growth Guyana has experienced over the decades and particularly during the Jagdeo years. I believe I have given several of these constraints in my Development Watch columns and in my oligarchy paper which I can email to anyone who would like an updated version. However, I would like to use this space to outline some of the things I believe are responsible for stifling Guyana’s economic progress.  I do not believe this list is exhaustive and there must be other constraints I hope other Guyanese will identify.

The first constraint would be the sub-optimal investments in physical capital. This includes the GuySuCo Skeldon factory, the one lap top project (versus placing IT departments in High Schools and community centres), the Fip Motilall fiasco (thus diluting a perfectly good idea to have a hydroelectric project), and the proposed government investment in a Marriott brand hotel. Why must the government subsidize a foreign hotel brand when many Guyanese private investors have taken on this risk by themselves? Why not use the money for other industries? I have nothing against a Marriott coming to Guyana, but it must be done fully by private investors.

Those who do not accept my position on the hydroelectric project ought to take a look at the signals coming from Banks DIH and DDL. These two great Guyanese corporations have signalled no confidence in the government’s hydro project implementation by investing heavily in their internal power generation. This should never have to occur since these two corporations pay taxes and they ought to have received better services. This cannot be good for the nation’s production efficiency when firms need to provide their own services that should be provided by the state. Of course, several analysts have already noted that the Berbice floating bridge of the year 2009 was not the best choice of project. The price to cross the bridge is also a signal that the World Bank’s proposal to make the ferry service faster would have been better at this moment in Guyana’s history.

The second is the stifling of private investors who are considered unfriendly to the government. The independent press has reported cases of favouritism where a law in Parliament was passed for one businessman, yet another businessman was in a public war of words with the President (I have documented these in my “Elected Oligarchy” paper and earlier columns). Once some investors are favoured while others are penalized we are limiting management capacity and setting the stage for limited TFP growth. I have explained several times how this oligarchy evolved in the past twelve years. Essentially, one person was able to use the Marxist-Leninist method of Democratic Centralism to consolidate power by selecting like-minded leaders. These like-minded leaders are then offered to the nation in free and fair elections. Once these PPP leaders enjoy a taste of the mildly tinkered 1980 Burnham Constitution we can expect a particular public management structure – which aims to place business formation and natural resources in the hands of a selected few – to get embedded in the society. I believe this structure has been harmful to the nation’s efficiency and now the distribution of wealth.

Third, given the entrenched ethnic voting patterns, there will be a feeling of alienation and marginalization within the group which did not win the election. Each of the main ethnic group is vying to install its own societal control system. In the old PNC days we had party paramountcy, while today be have elected an oligarchy which is born out of the internal party Machiavellian cut-throat struggles and which promotes the interests of selected family and friends while maintaining the masses at just about subsistence level.  But we all shoot ourselves in the feet at the end of the day as the productivity of the nation is diminished. Furthermore, once there is alienation, real or perceived, the nation is at best destroying and underutilizing its human capital. It is also now well documented that diverse opinions in management and science leads to innovation and superior technical change. Unfortunately, the present system in Guyana does not allow for this type of change. In my opinion there are two ways to circumvent this constraint: (i) elect multi-ethnic political party which then possesses the legitimacy to form a multi-ethnic government; and (ii) constitutional reform that allows for the latter.

The acute shortage of human capital or skilled labour is the fourth constraint of TFP growth. As a matter of fact, they reinforce each other in a kind of adverse circular causation. Limited skills reinforce low TFP growth which in turn reinforce limited growth – hence opportunities for skilled labour. As the World Bank’s migration data show, Guyana is the highest exporter of skilled workers – 89% migrate. This shortage adversely affects every aspect of the society.

There are few skilled workers to implement and monitor policies for the state, fewer investors, fewer scientists and engineers, fewer teachers and doctors. Civil society also takes a beating as there are fewer people to challenge the President’s policies.

There are also fewer ground soldiers to run a robust political campaign.  There are other constraints – like limited financial sector development – which I will not get into now; but I hope Guyanese will identify more and seriously ponder how to mitigate them.

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