Catalytic government needed

In its five years at the helm, it was clear the A Partnership for National Unity/Alliance For Change (APNU/AFC) Government had no clear strategy for Guyana’s economic development and was basically winging it on the mantra of “free markets”. The problem was there are no countries where “free markets” alone are running economies. In every country, production and productivity are functions of the right mix of three institutions – the market, the State, and the community.
Markets function through competition using prices as the mechanism to coordinate our production and consumption – that is based on self-interest. It is a very efficient mechanism from a production point of view – people will produce to make a buck. But one of the premises for its success is there should be enough people willing to take the risks, etc, to make that buck (entrepreneurs). What do we do when there aren’t? Hold our breath?
The State also coordinates our activities – through command and coercion. It is supposed to be acting for the common good. The State passes laws and makes regulations that affect our economic activity every day. For instance, its taxation policy on vehicles determines who can afford cars and, as the recent announcement by President Dr Irfaan Ali revealed, the Government indirectly controls interest rates via reserve requirements and, therefore, business decisions to borrow and spend. In the modern world, we cannot wish the Government away.
Our communities also structure our activities – through voluntary cooperation engendered by close personal ties and relationships. They work through trust and this is one of the reasons for the continuing relevance of ethnicity. This has been a most-neglected aspect in our development efforts and Governments should focus on increasing social capital.
The task of Governments is not to stand on dogmas, but to tailor the right mix of these three institutions to suit their concrete conditions. The Western countries developed through a high level of dependence on markets, but let us not forget that their Governments and communities played and continue to play crucial roles. They took a couple of hundreds of years to get where they are. Japan, on the other hand, because of its unique societal values, depended much more on the role of the community and trust. Their development to catch up with the West took one century.
Without question, State and markets also played crucial roles, but compared to the West, the State played a much greater role in guiding and fostering development. After WWII, we have seen Taiwan, South Korea and Singapore take only half a century for their development to catch up – but again, not relying totally on market mechanisms and determining their unique institutional mix of markets, State and community to coordinate their economic activities. This is what we have to have the courage to do in Guyana.
The new Government must accept that the cause of our underdevelopment is to some extent strategic rather than structural. Korea and Singapore were right where we were 50 years ago, if not behind us, not only statistically but structurally. Look where they are today. Their Governments, as catalysts, set strategic goals and then did what was necessary to back them. They followed the Japanese example and explicitly tied assistance to selected private industries based on their commitment and ability to export.
The assisted firms were subjected to the market discipline of the competition of international trade. This was the most intense competition and ensured that efficiencies and productivities had to be raised to the highest levels. The foreign exchange garnered, of course, bolstered economic flexibility.
In summary, markets may successfully orient individual agents to allocate resources efficiently, but they are not sufficient to coordinate individual actions over a long period of time and, most importantly for our purpose, towards desired social goals such as specified rates of growth.
Market orientation is not sufficient to generate market coordination toward collective prosperity. This is where the catalytic function of the State comes in. After all, collective prosperity is why we have the State to begin with.