To assert one ethnic group owns x percent of the country’s wealth is at best speculation

Dear Editor,

Two excellent pieces on inequality and ethnic security have been published recently by SN.  Prof. Tarron Khemraj’s essay, `Some historical notes for understanding PNCR and WPA economic policy since 2015’ (SN, 17 March) is powerful, analytical and insightful. The distribution of land undoubtedly plays a significant role in the distribution of consumption, income and wealth.  The next analytical step is a rigorous inquiry into the factors that determine the particular distribution of and what can be done about it. Dr. Baytoram Ramharack’s letter, `Anxiety over forthcoming election centres around the Ethnic Security Dilemmas, alternative political framework needed for a future Guyana,’ delves into the issue of poverty, ethnic fears of domination and argues for “a structural redistribution of our political power.” The purpose of this essay is to examine more critically the claim that one ethnic group owns and controls an exceedingly large share of the economy.  It builds upon Dr. Ramharack’s letter.

There seems to be some confusion around three common ideas of economic inequality, viz consumption, income and wealth.  Consumption inequality refers to inequality of spending on consumption; income inequality refers to inequality of income, earned or otherwise received. Particularly in poor countries such as Guyana, average consumption spending is larger than average income: people usually under-report income to dodge taxes while consumption spending can be augmented by remittances, savings, loans or some other means. This explains why income inequality as gauged by the Gini coefficient is around 6.6 points larger than consumption inequality. Neither consumption nor income is the same as wealth and neither offers a deep insight into the distribution of wealth.  Wealth is the net market value of assets owned by the people; essentially, wealth is the accumulation of marketable resources.  The three categories are thus different things: spending, earning and accumulation. From this standpoint, inequality of wealth distribution is not the same as inequality of consumption spending or income received, whatever the source. The level of inequality for one is not necessarily the same as those for the other two.

Patchy data exists on consumption and income inequality in Guyana, but none exists on wealth.  To assert that one ethnic group owns x percent of the country’s wealth is at best speculation and at worst whipping up of ethnic fury.  Such reckless “throwing out” of numbers, common during the last PPP regime, has no basis in facts; they are merely impetuous beliefs of no scientific value. What do scribblers mean when they assert that Indians own and control 90-95 percent of the economy?  Does this number refer to GDP or to accumulated wealth or to both? Does ownership, ipso facto, mean complete control in the context of a country where there is a government, rule of law and other institutions? Indeed, is there any economy or country in the world that is 90-95 percent owned by non-government entities?   Such questions reveal the depth of economic illiteracy of some academic scribblers.

Instead of the futile effort of trying to figure out wealth inequality, I intend show that the claim that Indians own and control 90-95 percent of the economy is nothing but fiction dreamt up by idle and under-powered minds.  To do this, we make use of Gross Domestic Product (GDP) and show that the government owns and controls a large proportion of the economy. GDP is the total value of all marketable goods and services produced by an economy.  More formally, GDP at purchaser’s prices is the sum of gross value added by all resident producers in the economy.  When any product taxes (a positive amount) and subsidies (a negative amount) not included in the value of products is added, the result is GDP at producer’s prices.  Government spending on crime or the health of an official is counted as part of GDP, as does the bill for officials who travel aboard, the pension government pays to the elderly or spending on education.  Work outside of the market, such as in the home, helping a relative, friend or neighbour “shai-ing” paddy or cutting rice or  providing home care for a sick or elderly relative or the externalities from spilling mercury into the river or from cutting down the forest are not counted as part of GDP.

According to Bank of Guyana Annual Report 2017, GDP, which is a direct measure of the size of the economy, comprises 19 sectors: sugar, rice, other crops, livestock, fishing, forestry, mining and quarrying, manufacturing, electricity and water, wholesale and retail trade, transportation and storage, information and communication, financial and insurance activities, public administration, education, health and social services real estate activities and other service activities.  It is a reasonable proposition that the government fully owns and controls five sectors: electricity and water, information and communication, public administration, education and health and social services (most of the latter).  The contribution of these sectors to GDP has remained relatively stable at 19.3 percent during 2006 to 2017.  The government owns and control a large component of sugar, and mining and quarrying.  The sugar industry is basically owned and controlled by the government save for a smattering of private cane production and the labour-power of workers who keep the mills grinding.  I conservatively assume that 60 percent of the industry is in the hands of the Government.  The government owns and controls bauxite production and export of this commodity accounted for around 45 percent of mining and quarrying from around 2006, which leads to the assumption that the government is responsible for 45 percent of the mining and quarrying sector. 

With these assumptions, the Government share of GDP averaged 29.6 percent during the twelve-year period.  The residual, of 69.4 percent of GDP, was contributed by non-government agents.  What fraction of this is owned and controlled by Indians?  To begin with, the rice industry, while largely owned by Indians, is controlled by the Government, which used to officially extract a huge surplus via paying farmers only a small fraction of the export price for rice, and outright theft recently.  This ownership-control situation is true, albeit to a lesser extent, for sectors such as manufacturing, other crops livestock, fishing and forestry.  The government can and does control without owning elements of the economy. Arguably Indians dominate other crops, livestock, fishing, real estate activities, manufacturing and forestry.  If one optimistically assumes that Indians completely own and control these seven sectors, their mean contribution to GDP was 22.9 percent during 2006-2017. 

A large fraction of the contribution of wholesale and retail trade is in the hands of Indians.  Assume that fraction to be 80 percent. The ownership and control of construction is dependent upon the political party in power but assume that Indians are responsible for 60 percent of its contribution.   I am not sure about the composition of the sector called “other service activities,” but assume Indians are responsible for 75 percent of its contribution to GDP. The contribution of these three additional sectors averaged 19.4 percent during the period. In total, then, Indians contributed 42.3 percent of GDP during the twelve-year period. Government and Indians together contributed 71.9 percent of GDP; other ethnic groups and foreign private entities contribute the rest (28.2 percent).  Even with the most optimistic assumptions, the belief that Indians own and control 90-95 percent of the economy – GDP – is a myth.

I recognize that ethnic contribution to GDP is not the same as ethnic ownership of wealth, but the former does offer a more useful insight into the distribution of wealth than consumption and income.  In the absence of data on wealth distribution, contribution to GDP is the second-best option.  My approach and assumptions may be challenged – and they should be.  Perhaps different results would be obtained but at least we will have a range of estimates, which are superior to vile guesses and more grounded in objective reality.

Yours faithfully,

Ramesh Gampat

Around the Web