Govt’s role in business

The recent revelations that licenses were issued for the importation of chicken twice yearly raised several issues. The first being the secrecy surrounding issuance of the licenses and secondly as to the process whereby the importers were selected. Guyana’s experience, of course, is redolent with the abuse inherent in these governmental exceptions when huge profits are in the offing. Connected to the latter is whether the 100% tariff on the importation of chickens was waived completely or lowered substantially.
The second would query the reason why in a supposedly “free market” economy, importation licenses were necessary since the WTO has rules that are intended to encourage free trade on the premise that this increases the efficiency of local producers as they are forced to compete with the widest global range of efficient producers. In our case the US is the most efficient poultry producer and in the nineties we were importing huge quantities of chicken parts from that country at very low prices.
In the early 2000s, however, the government made a decision to encourage local producers, and with a good case made to the WTO for treating the industry as “sensitive”, imposed a 100% tariff on imports in addition to enforcing sanitary requirements. The former imposition means that when an importer brings in the US chicken, its domestic cost price is automatically doubled – thus giving the local producer a great deal of leeway to compete. The reduction or waiver of the tariff is only supposed to be granted on extreme local shortages.
The theory behind the WTO’s acceptance of this assistance is that the local producers of an “infant” industry in a country need assistance to establish itself. Assistance can also be given in waivers on taxes (tax holidays) as was the case where GT&T paid no taxes on their profits between 1990 and 2000. The government also received no dividends on its 20% ownership of the corporation. And on top of all of this, GT&T also received a monopoly in the industry – one that it fought tooth and nail to retain. It is an elementary economic truth, of course, that monopolies lead to higher prices for consumers.
The financial industries, of which banks are the dominant players, are also backstopped by the Government to the tune of billions. Banks are given the licence to make money by accepting deposits and then lending those deposits at a higher rate than they pay the depositors. One would expect that the banks should be allowed to be disciplined by market forces in absorbing the risks in making loans.
But in Guyana, the government, through the Bank of Guyana (BoG) allows the banks to be very conservative in giving them a free pass on risks. The money accumulated in the banks is defined as “excess liquidity” and the government “sterilises” it at the BoG via T-Bills that give billions to the banks in interest. Unlike regular T-Bill operations in other countries, the government cannot use these “sterilised” funds – hence the name.
We could go on in enumerating examples, for instances, in the incentives given to the bauxite industry so as to revive its fortunes. The ongoing tensions about subsidising electricity in Linden originated ever since the PPP/C government, in the effort to find a buyer for the bauxite industry after its fall during the PNC years, took over that responsibility from the company, which had maintained it since the 1960s.
That has cost the treasury at least billion since the mid-1990s.
Citizens, then, have to be aware that in the modern economy, with business as the “engine of growth”, it is a standard practice for the government to facilitate business enterprises in establishing or stabilising themselves. The benefits to the country in the employment created, taxes paid, and skills imparted all redound to the country’s benefit.
We have to be on guard against those that would now say, for instance, that rice is “on its own”.