Government as business catalyst

The Inter-American Development Bank (IDB) has just released its 2016 annual macroeconomic report on Latin America and the Caribbean. Dubbed “Time to Act: Latin America and the Caribbean facing strong challenges”, the report emphasises that because of the continued anaemic economic performance of the developed economies and China – with a consequent plunge in commodity prices – growth in the Region will be flat, even though the price of oil has fallen significantly.
The report calls for fiscal prudence with a commitment to avoiding populist fiscal profligacy combined with a strong emphasis on infrastructural development in the near term. While this advice is salutary for an administration seemingly dedicated to just throwing its resources into the gala Jubilee Independence celebrations in May, it falls woefully short of what is actually needed to move the country on a sustainable growth trajectory.
What is needed is an “industrial policy” by the Government, which we have long advocated. The United Nations Conference on Trade and Development (UNCTAD) defines industrial policy as a “concerted, focused, conscious effort on the part of Government to encourage and promote a specific industry or sector with an array of policy tools”. Industrial policies are geared towards shifting the industrial structure of the country by the Government in an effort to increase growth of the economy.
The Soviet Union had pioneered the structured industrial policy mode in the transformation of their economy to catch up with the developed West. The State, supposedly on behalf of the “working class”, took the lead in identifying which strategic industries would deliver both goods needed for consumption and production and then make the necessary investment. Their evident success led to most poor, developing countries in the Third World imitating this model.
In Guyana, the PNC Government insisted it was a “socialist” government that would use “co-ops” to develop the economy; following the nationalisation of the “commanding heights of the economy”, the State controlled most of the productive enterprises. It also launched a raft of enterprises such as factories to produce bicycles, glass, fabrics, leather and earthenware. Most of these failed ignominiously and following the victory of the neo-liberal forces in the developed world in the 1980s, the new dispensation of “market fundamentalism” was imposed by the IMF here and elsewhere.
Under these policies, Governments withdraw from any direct involvement in production and the market – composed of private entrepreneurs –- was supposed to “decide” what and how much the economy was supposed to produce. The fall of the Soviet Bloc hastened the retreat from overt industrial policies and the embrace of “market fundamentals”. While there were evident successes from the “free market” policies, it all came crashing down in 2008, when the entire developed world entered into a recession in which they are still enmeshed.
But by then it was evident that there was a third way in economic development that led to more sustainable growth: it was exemplified by Japan and the Far Eastern Tigers. In this “third way”, there was also the identification of strategic industries and their facilitation, but the Governments very soon, turned them over to private interests. South Korea’s Samsung is an example of such a company. China, which interestingly moved into a government-controlled but privately-driven industrial policy mode of development at the same time “market fundamentalism” was sweeping the rest of the world – was also successful.
The difference between the Chinese and Russian models of industrial policy development was that while the Chinese Government was integrally involved, the companies and enterprises were subject to market forces. In Guyana, productive enterprises under total Government control quickly develop fatal inefficiencies. In the Chinese model, their authoritarian Government acts to eliminate such inefficiencies but such a government cannot and should not be tolerated here.
We suggest, therefore, that while the Government must practise fiscal prudence, investment in infrastructure is not enough. It must see itself as an initiator and catalyst of an industrial policy.