Easily seduced

Fashionable

There was a time when countries like Guyana were interested in what an economist like W. W. Rostow had to say about development. Indeed, it was quite fashionable at one period in history for newly independent countries to pursue the idea of self-sustaining economic growth as a way of comforting themselves that they could enjoy economic independence. Those countries that had the courage actively searched for a way to secure continued economic growth by increasing their domestic savings to finance their own domestic investment. Guyana was one of those countries which felt that the mercantilist policies of the 20th Century were valid policies for achieving economic growth, and shortly after Independence began to pursue such policies.   Part of this mercantilist policy posture undoubtedly came from an awareness of the stages of growth theory of Rostow as implied by William Demas in his 1965 book entitled ”The Economics of Development of Small Countries: With Special Reference to the Caribbean”. Demas was the first Secretary-General of Caricom and had a front row view of the fervent efforts of some Caribbean countries, especially Guyana and Jamaica, along with other like-minded developing countries to remake the world to their own image and likeness. As logical as it sounded, self-sustaining growth as he remarked in his book “was at variance with the hard facts of international economic life in the [then] contemporary world”.

 Remake the World

Twenty-five years after Rostow’s idea on self-sustained development was abandoned by Guyana and numerous criticisms of the model, Rostow’s theory might be making a comeback.   It is once again linked to efforts to remake the world, but this time with the intent of achieving environmentally sustainable development. Studies have begun to emerge that seek to find out if the model could be used to determine the stage of development at which a country needs to be to cope with environmental challenges. One such study was undertaken on the economy of India by Rita Yi Man Li and Ronald Hung, and published last year in the Journal of Contemporary Issues in Business Research to know if India had reached the stage of self-sustaining development. The study concludes that India was in the drive to maturity stage of development. India, therefore, is essentially a highly industrialized country.

 Rostow’s Model

20130728rawle's business pageTo understand what that means, it is necessary to know the features of the model. The Rostow model consists of five stages of development. In a nutshell, the theory sees the traditional society as the starting point of development. The traditional society is one in which subsistence agriculture is dominant. A country is then expected to develop the preconditions for taking off, and subsequently acquiring the ability to take off. Being able to take off implies an ability to rely on domestic savings to finance domestic investment so as to achieve self-sustained growth. It is that magical point at which everything should follow even though not necessarily with great ease as the years of war and turmoil among European countries showed. Once it achieves self-sustained growth, the country begins to mature. There workers are highly skilled, leadership is more dynamic and the development of the human condition assumes greater importance. Finally, a country enjoys high levels of mass consumption of a wide variety of goods. Throughout this process, natural resources play a role in the establishment and expansion of industries.

 Seductiveness of Model

LUCAS STOCK INDEX The Lucas Stock Index (LSI) declined 0.18 percent in trading during the third period of October 2014. The stocks of four companies were traded with 19,100 shares changing hands.  There were no Climbers and three Tumblers.  The value of the stocks of Demerara Bank Limited (DBL) fell 0.32 per cent on the sale of 10,000 shares.  The value of the stocks of Demerara Distillers fell 1.3 per cent on the sale of 6,500 shares and that of Guyana Bank for Trade and Industry (BTI) fell 0.02 per cent on the trade of 100 shares. In the meanwhile, the value of the shares of Banks DIH (DIH) remained unchanged on the sale of 2,500 shares.
LUCAS STOCK INDEX
The Lucas Stock Index (LSI) declined 0.18 percent in trading during the third period of October 2014. The stocks of four companies were traded with 19,100 shares changing hands. There were no Climbers and three Tumblers. The value of the stocks of Demerara Bank Limited (DBL) fell 0.32 per cent on the sale of 10,000 shares. The value of the stocks of Demerara Distillers fell 1.3 per cent on the sale of 6,500 shares and that of Guyana Bank for Trade and Industry (BTI) fell 0.02 per cent on the trade of 100 shares. In the meanwhile, the value of the shares of Banks DIH (DIH) remained unchanged on the sale of 2,500 shares.

It is easy to see how one could be tempted by the logical progression towards greater industrialization and higher income offered by the stages of growth contained in the theory. And as one reflects on the outcomes that could see huge modern buildings, multi-lane highways, plenty cars on the streets and fast food joints like in the highly industrialized countries, it is easy to be caught by the seductiveness of the theory. Moreover, the theory goes beyond the single GDP measure and identifies characteristics of development with which lots of countries could identify. For example, it emphasizes private markets and the role of domestic savings in enabling investment and growth to take place. It places responsibility for resource use and management on both the public and private sector. It therefore makes room for both public policy and corporate social responsibility. In addition, the theory acknowledges the role of production, trade, consumption and financial decisions by the rest of the international community on national decisions, especially at the lower stages of development. Importantly too, it brings out the need for good and capable institutions in managing the social and economic circumstances of a country, a key factor in securing sustainable development. Being aware that the stage of development of countries could be identified by a set of factors given by Rostow, one could ask at what stage of development is Guyana according to that theory?

 Guyana’s Stage of Development

With the supposed conditions of development known, it is possible to form an opinion as to what stage of development is Guyana. The initial or traditional stage is eliminated because agriculture is no longer the dominant sector of the Guyana economy. The third, fourth and fifth stages are ruled out for several reasons. A review of our national accounts shows that consumption accounts for over 60 percent of our spending. However, much of this is imported. Additionally, Guyana’s manufacturing sector is the smallest in the economy, contributing an average of six percent in the last eight year to income, and the country does not produce any heavy industrial products. Further, the economy cannot sustain itself without substantial amounts of imported intermediate and capital goods and concessional financial assistance from abroad.

 Pre-Takeoff

That leaves Guyana at the pre-takeoff stage of development. The Guyana economy was rebased in 2006 where the base year shifted from 1988 to 2006. GDP and agricultural production in the years prior to 2006 were measured using 1988 prices. The subsequent years use 2006 prices. From 1990 to 2005, the average annual contribution of agriculture to GDP was 28 percent. However, overall primary commodities were responsible for between 39 to 43 percent of GDP. During that period, the largest contribution from agriculture was 31 percent. On the other hand, from 2005 to 2013 agriculture contributed an average of 21 percent annually to GDP, declining from 24 to 19 percent in 2013.

Later years saw efforts at mechanizing the sugar industry, attempts to expand the cold storage infrastructure for perishable agricultural products, efforts to add value to sugar production through the packaging and labeling of sugar with the construction of a packaging plant at Enmore. In addition, an effort was also made to build a hydropower facility. The mechanization of the sugar industry has stalled with the Skeldon Sugar Modernization project plagued with design and mechanical problems. As a result, the Enmore Packaging Plant has been underutilized. The other crops production still relies on small farmers with low technology. Despite the efforts at diversification, Guyana remains a factor-driven economy. Primary production is still responsible for about one-third of the country’s output. The country’s export trade is dominated by primary commodities which account for 95 percent of total export revenues. Further, government dominates the economy with a contribution of 65.6 percent of the domestic expenditure as observed by Professor Clive Thomas in his publication “Too Big to Fail”.

Human Development

When one adds some of the conditions of human development as developed in the Human Development Index (HDI) of the United Nations Development Programme (UNDP), they underscore Guyana’s placement at the pre-takeoff stage of development. The selection of the pre-takeoff stage is supported by the level of human development in Guyana. According to the 2014 Human Development Report of UNDP, countries with high human development indices have mean years of schooling above 12 years and expected years of schooling close to 20 years unlike Guyana which has a mean rate of schooling of 8 years and expected years of schooling of below 12 years. Nearly one-fifth of the population experiences multidimensional poverty, a situation where several factors are contributing to economic hardships. Gender inequality as reflected in the labour force participation is significantly high. Women have a 42 percent participation rate in the labour force as against men who have an 82 percent participation rate.

Less Useful

Despite its many enticements, the model becomes less useful in today’s world of trade liberalization, foreign investment and globalization where more and not less dependence on financial capital flows and physical capital imports leads to increased production and higher growth.

Trade liberalization and global integration have shrunk the national policy space further and restrains national capacity to do many things. In other words, the hard facts of contemporary international life as noted by Demas still remain a factor in the life of a country like Guyana. So despite the seductiveness of the Rostow model, its romance with development remains a rocky one.

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