For a more dirigiste State

One of the enduring refrains in this space has been the need of the administration to become more directly involved in the economic development of the country. We had called for the creation of a “Catalytic Entrepreneurial State” (CES). Such a state would firstly, and obviously, have to be a very responsible state, with a strong commitment to the development of all communities and simultaneously working assiduously to increase its legitimacy. The former process would greatly help to achieve the latter goal. In light of the government’s revival of their Low Carbon Development Strategy (LCDS) and diversification drive with oil funds coming in, we repeat our call. Left to the private sector alone, even the new direction will not provide the robust growth rates necessary to make the sustained positive impact on our standard of living.
We understand the background to the Opposition PNC’s reluctance to adopting a more dirigiste approach. Guyana, under the PNC along with many other third world states, had a disastrous experience with state involvement in development during the 70’s and 80’s and this soured the IMF/World Bank’s enthusiasm for such policies. The flawed premise of this fear, however, is to assume that the form of the state itself has to be constant, as it is used to perform large and more varied tasks. History has shown that not all state actions are negative and in fact there may be the necessity for government interventions when the free market or community coordinating mechanisms are stymied for one reason or other – market failure or community breakdown.
The expansion of the role of the state does not mean that Guyana must repeat the mistakes of her past. The PNC’s development plans during the 70’s and 80’s were driven by State ownership of production (State Capitalism) which destroyed the market and community forces necessary for competition and other coordinating activities necessary for sustainable growth. The socialist dogmas undergirding the then development policies were inimical to the free market and self reliant communities and spawned a culture of special interests seeking to benefit from the state policies (rent seeking).
Apart from the fact that there may be other, non-economic, factors inhibiting investment – such as political instability – investment and the consequent economic growth is not just a question of creating institutional environments but rather one of creating institutional arrangements. Theory must be guided by successful practice. Even theory supports this position. The efficacy of markets depends on the presence of markets for all contingencies, i.e. that markets are complete. The important point is that when some markets are missing, they will not clear and the resulting allocation can be improved on.
The history of Europe and the US and the Far East has shown that the state played a major role in their development, “by mobilising savings, providing infrastructure, shaping sectoral priorities, and in many cases forcing individual agents to engage in market-oriented activities through taxation The World Bank/IMF have now accepted a role for the state in achieving desired growth rates by proposing Public Private Partnerships in infrastructural and industrial development. The litmus of proposed activities would be for the state to implement policies that strengthen market and community coordination to promote growth and development.
A pragmatic approach to development is necessary because the cause of our underdevelopment is to some extent strategic rather than structural. Korea and Singapore were right where we were fifty years ago, if not behind us, not only statistically but structurally. Their Governments, as catalysts, identified and set strategic goals and then did what was necessary to back into them. They followed the Japanese example and explicitly tied assistance to selected private industries based on their commitment and ability to export. This strategic decision had two significant and faithful results: firstly, the assisted firms were subjected to the market discipline of the competition of international trade. Secondly, the exports brought in foreign exchange to purchase goods not produced locally. The government’s decision on the gas-to-shore project and its downstream development is a step in the right direction.