Even though we were located firmly on the fringes of the periphery of the developed world, which embarked on its embrace of the neo-liberal economic paradigm with the election of Thatcher in Britain (1979) and Reagan in the US (1980); by 1989, when the PNC turned to the IMF for relief for the crushing debt it had accumulated, Guyana was shanghaied into its embrace.
One pillar was the “development” of our financial sector, which was forced to “liberalise”; i.e., loosen the regulatory framework, which had been painstakingly installed after centuries of struggle, on the altar of “small government”.
But the “night watchman state” was not just a matter of form, but was undergirded by a philosophy of governance that rejected Government taking any responsibility for alleviating the condition of the poorer elements of society, and instead exalted unregulated private companies, buttressing their bottom line by any means necessary.
That ethos was articulated a half-century ago by the influential US thinker Ayn Rand, and summarised in her novel “Atlas Shrugged. Basically, she derided altruism (“breeds immorality and evil”) and trumpeted selfishness (“the highest virtue”). She lionised the human ego, rejected God as an artifice for the expiation of human failures, extolled the separation of state and the economy, and promoted governmental deregulation.
Rand inspired a devoted band of followers, including Alan Greenspan, who, as Chairman of United States Federal Reserve from 1987 to 2006, put their theory into practice.
And it seemed to work. By the nineties, after Clinton had completed the gutting of substantive financial regulating by allowing banks to join the securities investment frenzy, the bullish stock market silenced all but a few, who were derided as Jeremiahs.
But the Enron scandal in 2001 saw one of the darlings of Wall Street file for bankruptcy, after it was investigated by the SEC when its stock plunged from $90 in 2000 to $1 a year later and shareholders filed a $40 billion suit. In the words of Wiki, “Commentators attributed the mismanagement behind Enron’s fall to a variety of ethical and political-economic causes.
Ethical explanations centered on executive greed and hubris, a lack of corporate social responsibility, situation ethics, and get-it-done business pragmatism. Political-economic explanations cited post-1970s deregulation, and inadequate staff and funding for regulatory oversight.” Its $63.4 billion in assets made it the largest corporate bankruptcy in U.S. history, until WorldCom’s bankruptcy the next year. Guyana was not spared when some of the same issues forced the collapse of Globe Trust in Guyana, and a host of small investors lost their shirts.
Basically, the flaw with the neo-con model goes to the very core of their central premise: the exaltation of selfishness. They miscalculated the power of its corollary – greed, which had been kept in check, however tenuously, by the old regulatory framework.
In Guyana, Chancellor Carl Singh castigated the Directors of Globe Trust for their unsecured loans made to themselves and their relatives and friends; but also the Bank of Guyana, for its dereliction of duty under the Financial Institutions Act to monitor the activities of the institution. In the US, a chastened Greenspan admitted the “flaw” in his model: self-regulation in an arena of greed unbound is performatively a recipe for disaster.
In practical terms, the model raises what is known in economics and related fields as “moral hazard” and “principal-agent” problems. Where does one then draw the line when, as in the modern corporation, ownership and management are not in the same hands, and the guiding philosophy is “greed is good”? Business and entrepreneurial behaviour is at the bottom, a matter of taking risks; and society has already created the legal framework for protecting individuals from those risks by forming corporations that are treated as “legal bodies”. But while society is willing to have those who take risks receive the rewards, this must be predicated by the society also benefitting as well as shareholders. And this is where we have to reintroduce governmental regulation to keep financial and business institutions in line, especially as oil funds will soon balloon their ranks.