Piecemeal solutions cannot address the dismal performance of the manufacturing sector

Dear Editor,

The Stabroek News editorial on Tuesday December 9, entitled the ‘Manufacturing sector’ is a timely but disappointing analysis on the reason for the poor performance of the manufacturing sector in Guyana estimated at 4 % of GDP. The dismal performance of the sector cannot be solved by some piecemeal solutions such as “friendly tax regimes, cheaper energy cost or some bilateral agreement to secure access to factories, equipment, technical expertise and international market support.” Some of these had been tried before with the same results. The manufacturing sector has faced numerous constraints; however, it is necessary to identify the binding constraints to its growth and development.

The development of the sector can be achieved via a process of structural transformation and diversification that involves reallocating resources from less productive to more productive economic activities. The IMF Staff Discussion Notes (2012) pointed out that structural transformation involves changes not only in the types but also in the quality of goods produced, producing higher quality varieties of existing products can build on existing comparative advantage –via the use of more physical and human capital diversifying into products with longer quality ladders. This is a first step in building a manufacturing base in an economy. Diversification away from primary commodities is strongly associated with higher export earnings and sustained economic growth.

The editorial quite vaguely stated that there was “modest effort s by the previous administration to create a manufacturing base – at a time when the country could not afford the imported technology necessary for creating and equipping factories.” There were several different persons at the helm under successive administrations in both the PPP and PNC governments. Therefore one can only guess which administration and leadership the editorial was referring to in its discussion. However, the first serious and major effort at setting up a manufacturing base in Guyana was in the late ’50s early ’60s by the then Dr Cheddi Jagan administration that created the first industrial site at Ruimveldt. Speaking with one of the early entrepreneurs of that period, the late SK Puri in the early nineties, he pointed out that even before some of the infrastructure was in place at the site Dr Jagan helped him translate his plan into reality. Further, the late Gavin Kennard who was in charge of the project stated that when financing was a major constrain Dr Jagan was able to secure the support of the Commonwealth Development Fund to provide concessionary long-term financing for the manufacturers.

The SN editorial made some scant reference to “appropriate technology and sub-standard intervention that were rejected by the Guyanese people,” a general comment which again failed to mention the period. Stiglitz and Greeewald’s recent publication Creating a Learning Society is good literature that explains how technology can be fused with human capital to provide accelerating economic growth. They stated that technical change is a process of learning, and firms grow and countries develop as they learn in three ways – intervention, innovation and learning to learn. The publication provides both theoretical and empirical evidence about how countries and industries grow at an accelerating pace. This book is a valuable guide to policy-makers.

There are a number of case studies on countries that made a successful transition to high income status; however a fascinating case study was by John Mathews on Electronics in Taiwan, A case of Technological Learning. Mathews shows how the Taiwan government built a national system of economic learning in a process that involved innovation and technological diffusion to industries and firms. Taiwan inherited no comparative advantage in electronics, but it moved away from static comparative advantage with low cost labour to dynamic comparative advantage with high quality human capital. Taiwan was able to accelerate from a per capita income of less than US$200 in the ’80s to more than US$42000 today. Its economy can double its size in ten years – the fastest growing ever. All fast-growing economies harnessed human capital – a factor input into the production process that contributes to increasing return to scale.

Finally, unlike what is being offered as solution in the SN editorial, such as more tax concessions that will only benefit special interest groups who devote such resources to unproductive rent-seeking activities while the economy stagnates, only a vibrant manufacturing sector based on latent comparative advantage can propel Guyana forward. Finding that niche in manufacturing is a process of self-discovery backed by good economic policies.

Yours faithfully,

Rajendra Rampersaud