From the moment he acceded to office, President Irfaan Ali has followed decades-long Guyanese attempts to get Caricom to accept a coordinated effort to satisfy our common food security and general development challenges. Over the years, we have had several other economic strategies suggested to us by the global financial organisations, ranging from the vent for surplus and capital deficit through the import substitution programme and finally, the one we are finally enmeshed within – neoliberalism. Unless we factor in the impact of the ideological premises of these strategies, our local efforts can be subverted to our cost.
The crisis in the developed economies since 2008, which crippled the Caribbean tourism industry, is rooted in the neoliberal economic paradigm that has guided economic policy since the late seventies. Before this, after WWII, the economies of the US, Western Europe, Japan, and Brazil, etc were characterised by a “virtuous circle” Keynesian model built on full employment and wage growth tied to productivity growth. Productivity growth drove wage growth, which in turn fuelled demand growth and created full employment. That provided an incentive for investment, which drove further productivity growth and supported higher wages. Guyana, of course, under the People’s National Congress (PNC), chose to buck the above economic model that was followed by most of the Caribbean countries and devised the disastrous “cooperative socialist” model.
After 1980, the virtuous circle Keynesian model was replaced by a neoliberal growth model that severed the link between wages and productivity growth and created a new economic financialisation dynamic. Before 1980, wages were the engine of US demand growth. After 1980, debt and asset price inflation became the engine.
The new model was rooted in neoliberal economics and can be described as a neoliberal policy box that fences workers in and pressures them from all sides. Corporate globalisation put workers in international competition via global production networks supported by free trade agreements and capital mobility. The “small” government agenda attacked the legitimacy of Government and pushed for deregulation regardless of dangers. The labour market flexibility agenda abandoned the goal of full employment and consequently created employment insecurity.
This model was implemented on a global basis, in both North and South, which multiplied its impact. The Washington Consensus was enforced in Latin America, including Guyana (1989), Africa and former Communist countries by the International Monetary Fund and World Bank by making financial assistance conditional on adopting neoliberal policies. The new model created a growing “demand gap” by gradually undermining the income and demand generation process. The role of finance was to fill that gap. Within the US, deregulation, financial innovation, and speculation enabled finance to fill the demand gap by lending to consumers and spurring asset price inflation. US consumers in turn filled the global demand gap. Luckily, this has not fully developed in the Caribbean as yet, with some notable exceptions.
The policymakers in Guyana and the Caribbean have to be very careful as to what their policy response to the different perspectives will be. They could take the strong neoliberal position and further deregulate financial and labour markets; deepen central bank independence and the commitment to low inflation; and further limit Government via fiscal austerity. A watered-down response might be to tighten financial regulation but continue with all other aspects of the existing neoliberal policy paradigm. That means continued support for corporate globalisation, labour market flexibility, low inflation targeting, and fiscal austerity.
A more radical approach would be to jettison the failed neoliberal paradigm and replace it with a “structural Keynesian” paradigm that repacks the policy box and restores the link between wage and productivity growth. The goal would be to ensure that corporations and financial markets are regulated so that they are made to serve the broader societal goals.
That requires replacing corporate globalisation with managed globalisation, such as capital controls, restoring commitment to full employment, replacing the neoliberal anti-government agenda with a social democratic Government agenda; and following a solidarity-based labour market agenda that is appropriate to our underdeveloped labour realities.
