Recapitulation

Although not stated previously, the reason for beginning with the pattern of Guyana's insertion into global capitalism is the pre-eminent role that system plays, and will continue to play well into the future, in shaping economic opportunities and outcomes for Guyana. The manner of insertion is characterised as backward because it is principally based on a pattern of specialisation in the export of natural resource intensive primary products, a sector whose international importance is being rapidly reduced in the age of globalisation. As I indicated, there has even been economic regress, since earlier efforts (going as far back as the mid 1970s) to develop and increase domestic value added in the traditional sugar and bauxite export industries have been discontinued or reversed. The corollary of this is that, to the extent transnationalised crime develops, the shadow economy will continue to be based on more "modern" methods and processes than the official economy.

We next considered domestic private markets because these are the most ubiquitous manifestations of a capitalist economy at work. Markets are efficient when they are competitive and broad-based. However, as I advanced last week, markets in Guyana are thin, weak, segmented, regulated, easily cornered and/or monopolised. They are therefore intrinsically inefficient, which further supports the characterisation of backward capitalism. I also referred to examples where private markets are so backward that routine purchases in them for a few hundred dollars could bring harm and death to consumers, with little or no threat of punishment to the sellers, as with the case of expired pharmaceutical drugs. The thrust of my argument is that such markets do not only devalue the consumer, they devalue life itself. Such markets relegate life to a secondary position in the pursuit of what is basically minimal profit making. Such developments inevitably help set the tone for the way human life is treated under the criminalized state.

Third feature

A third feature of backward capitalism is to be found in the structure and operations of private enterprises in Guyana. When one speaks of the private sector, one tends to have in mind firms that participate in the various associations, chambers, or commissions. In truth, however, the vast majority of private enterprises are small one-person or one-family near-subsistence operations, engaged in a wide variety of retail/trading activities. It is only a tiny minority of enterprises that are corporate entities, and in-between there are a number of largish enterprises. These latter enterprises are for the most part family operations and are well distanced from the near-subsistence operations referred to before.

For the most part, private enterprises in Guyana are backward, in that very few are engaged in systematic research and development (R&D) and the continuous search for ways to innovate on their products and/or their production and distribution processes. Yet, as we have seen time and again in this series, in the age of globalisation enterprise competitiveness cannot be maintained unless systematic attention is directed at both the price of the product and its innovation. Enterprises that do not continuously stress innovation and R&D are doomed to extinction once they face competition. In the face of competition the most likely defence of backward enterprises is to invoke state protection, which in this age of liberalisation and intense global competition it is becoming increasingly difficult for states to provide and sustain.

Clearly, seeking state support and cooperation in this context is not based on any real strategic purpose or design that would advance either the competitive position of the enterprise or the nation. It is instead based on the pursuit of the opportunistic protection of inefficiency. As we have seen time and time again in Guyana, the ruling regime's inclination is towards 'protecting' political support, so that a 'positive' response of one kind or another is likely - save perhaps where an externally determined conditionality might prevent this. There is therefore, a mutually supported willingness on the part of both parties to embrace an opportunistic dilution of the long run development priorities of the nation. This is a phenomenon, which is typical of governance of backward capitalist economies, and we shall return to develop this point further at a later stage.

In the typical private enterprise the violation of work practices and codes is routine. Desperate for jobs that are in short supply, employees willingly sign as receiving payments, which they have in fact not received. Employee national insurance/social security payments and even income taxes are deducted and not forwarded to the proper authorities - setting the scene for later personal tragedies when this is subsequently discovered. Often these enterprises do not otherwise pay their own income taxes and many small operations never file a return.

With such enterprises supplying goods and services, it is easy to see why low standards, poor quality, and the absence of effective after-sales agreements flourish. The National Bureau of Standards and other regulatory bodies try to keep control over the situation, but are invariably overwhelmed by the sheer numbers involved and their own very limited resources. Furthermore, the broader public environment is usually not supportive enough to deter these economic distortions.

Several of these firms also operate in the shadow economy as 'money-laundering outfits.' The regular firms, however, often acquire their capital through loans, a significant percentage of which is not repaid. Such loans lead to gearing or a high debt ratio, which puts a strain on financial operations. Many enterprises have also been known to borrow funds and immediately remit it overseas, so that if and when difficulties of repayment emerge, their assets holdings are not subject to local seizure.

In this morass business operates without the fostering of trust. Only a strong, development-oriented state and powerful regulatory bodies can contain abuses and chart a way forward. Regulatory bodies, however, become susceptible to 'capture.' Good governance emerges as an indispensable bulwark, if the slide into the criminalisation of the state is to be avoided. In this sense, therefore, I would argue that issues of governance, and the building of trust and social capital, which presently are on the front-burner of the development dialogue do not merely represent yet another set of 'development fads,' but are indeed concerns of strategic importance in deterring the degeneration of politics under backward capitalism, the rise of the shadow economy and the criminalisation of the state.

Interfacing with the criminalised state

Interface
As promised, this week we consider the governance of the economic affairs of Guyana and the contribution this makes to the pathologies we are examining. The thesis I am seeking to develop is that in the present global environment the interface between the shadow economy, transnationalised crime, the insidious criminalisation of the state, and the backward capitalist nature of the economic system, lies principally, but no means exclusively in 1) the governance of the country and 2) the standards of governance practised by the major international financial institutions and the developed countries, which deal in the main with Guyana.

As the term has come to be widely used, governance covers all features, aspects, and dimensions of the way in which a country is governed. For economists, the various economic policies along with the regulatory and incentive framework in which economic activity takes place in a country are vital aspects of governance. This emphasis is made as traditionally the more overtly political dimensions of governance have been stressed to the exclusion of these considerations. From this perspective, public corruption is in effect “the abuse of authority or trust for private benefit” - as indeed social science textbooks now routinely describes it. There is abundant evidence that poor governance in this sense, fosters corruption. And, because corruption is more often than not economic in nature, its consequence for the economy, as we have been indicating for several weeks now, has been invariably detrimental.

When combined, poor economic governance, corruption, and the shadow economy exert an enormous toll on the standard-of- living of the broad mass of Guyanese. They operate synergistically, reinforcing each other. As I have indicated, the shadow economy alone is estimated at US$320 million. And, while other factors have contributed to it, much of the difference between the growth of potential output, (that is the rate at which the economy could grow if it made effective use of all available factors) and actual output can be attributed to poor economic governance. My personal estimate of the growth of potential output is between 5-7 per cent per annum for the post-ERP reform period. Actual growth since 1997 however, has averaged less than 0.5 per cent, and my claim is that poor economic governance can account for a significant portion of this difference.

The cost of poor economic governance
It is widely recognised that there are critical governance weaknesses in Guyana, which have undermined many areas of Government economic activity. Their cost is enormous and can only grow with time, if neglected. Many calls have been made for improved public financial management to the point that the donor community has expressed the view that the weaknesses of governance in Guyana are so critical as to constitute the major obstacle to the development of the country. Thus for example, in discussing infrastructure to support growth, the World Bank has stated, “Guyana will need to address the critical governance and institutional weaknesses which have undermined the transparency and efficiency of infrastructure spending in the past.” It goes on to make the more general observation that “weaknesses in these areas are the key constraints to private sector development and the major factor explaining the low social and economic return on public spending.”

The last phrase of the previous quotation is very significant. Several persons have inquired of me: how it is that so much funds are being spent in Guyana by the international financial institutions and donor governments and still the economic and social situation of the country shows no significant all round improvement? The quotation shows that the donors themselves have provided the answer, thereby justifying my claim that poor economic governance can explain a significant portion of the difference between potential output and actual output in Guyana.

Survey of public sector corruption
In 2001 the World Bank undertook a survey of public sector officials in Guyana. The results confirm what most Guyanese know, but is nevertheless of immense usefulness in advancing one of the propositions of this series because of the lack of bias and the credentials of the World Bank in this regard. The survey found that as many as 93 per cent of all officials who responded believe that corruption is significant in the public sector. And, to make matters worse, only 9 per cent of the officials reported having “known of another official being disciplined for embezzlement.” This is a staggering statistic.

The World Bank in reviewing its own activity in Guyana reported, “Between 1993 and 1997, performance of the portfolio was unsatisfactory, including incidents of misprocurement.” The latter was considered to be so serious that it contributed to the withdrawal of two intended operations, one in health and the other in the upgrading of secondary towns. As information on the internet reveals, the Infrastructure Rehabilitation Project closed in 1999 as a result of these factors. Furthermore, the Government was committed to refund US$1 million of ineligible expenditures carried out under the project where the misprocurement occurred.

High risk country
These occurrences obviously raise questions not only about economic governance in Guyana, but also about the standard of governance practised by the international financial institutions, when utilising taxpayers funds in aid recipient countries. The World Bank routinely conducts its own Country Procurement Assessment Report (CPAR) and Country Framework Accountability Assessment (CFAA) as part of its oversight responsibilities when expending funds in member countries. Not surprisingly, the CFAA rated Guyana a “high risk country.” As we shall see later it is from the CPAR that the recommendation came for new procurement legislation in Guyana. It is also the source of pressure to transform the budget process. Furthermore, in light of the 1993-1997 assessment, supervision missions to Guyana have become “more intense” and the Bank Country Office was also established here two years ago.

Poor economic governance is not confined to poor public financial management, the misuse of funds, embezzlement and the other concerns addressed so far. It reaches also into macroeconomic management. A good example of this is the scepticism and the running dispute this has led to concerning the national economic statistics. Data from the Internet reveal that IMF technical missions had difficulties in accepting the GDP data, as they were unable to reconcile discrepancies amounting to between 1-2 per cent of the GDP. The explanations being engaged at the time were that there must either be some “off-budget spending” that the accounts failed to capture, or “short-falls in revenues” when compared to the reported data. In either case the concerns never filtered to the general public, with the Fund’s role in this at least as questionable as that of the Government’s given the responsibilities of both to spend other persons money prudently and transparently.

The tangled web: Keeping policy information out of the wrong hands

In developing the analysis of globalisation and the emergence of the criminalised state as a new variant or form of state in market capitalism, last week I introduced the proposition that the interface between the shadow economy, the insidious criminalisation of the state and the backward nature of the economic system, lies principally, but not exclusively, in the governance of the country and the standards of governance practised by the major international financial agencies and governments when dealing with Guyana. The manner in which the political administration governs a country is a good pointer to the prospects for criminalised behaviour becoming embedded in the state. There is compelling evidence to support the assertion that a proclivity on its part towards scampishness, abuse, roguery and scheming opens the door to organised criminal endeavour.

Last week I cited a few concrete examples of poor economic governance. From these two salient points emerged, which we develop further today. One is that for most of the examples I had cited the involvement of the international financial institutions (IFIs) was considerable, suggesting that their role in the development and persistence of poor governance in Guyana is not inconsiderable. The second point is that poor governance carries an enormous cost, which in the main is borne by the Guyanese masses. As I pointed out this cost is not confined to the fraud, corruption and misuse of public funds, which it engenders, but includes also the negative impact on economic growth that comes from macroeconomic mismanagement. The considerable gap between the estimate I offered of potential output growth in Guyana (5-7 per year percent in the post-ERP reform period) and actual growth (which has averaged about half of one per cent since 1997) reflects in part this negative impact.

Paradoxically, it is data generated by and for the IFIs, which have served to throw the most light on these disturbing developments. I refer here to the World Bank survey of public sector officials about corruption, the requirement to refund misprocured funds, and even the World Bank's rating of Guyana as a "high risk country" as a consequence of the prevailing conditions, which I reported on last week. Data from such a source obtains a public credibility that similar data generated outside of official circles cannot. Most of these data are, however, not generally made available in the public domain. It remains true however that until this is routinely done then no corrective action or improvement will follow.

The wrong hands

Whether intended or not, for good or bad, some statements are destined to be immortalised because they capture a moment of time or some enduring feature of the human predicament. In Stabroek Business of May 2 last it was astonishingly reported that while the IMF believes that economies function best and are less vulnerable to crisis when they practise transparency, "Guyana's government is of the view that such openness leads to policy information ending up in the wrong hands." It goes on to state that President Jagdeo indicated that "the unavailability of Guyana's policy intention documents with the IMF... was deliberate as this information once in the wrong hands could get distorted."

The implication of this attitude towards making economic policy information public, when by definition this is public not private business, is not only a throwback to another age but is grist in the mill for all those with vested interests that cannot stand the light of public scrutiny.

The saga of the Procurement Bill

Another and perhaps more timely example of this dilemma is the saga concerning the Procurement legislation, which according to the recent Communique from the President and Leader of the Opposition is the subject of their agreement. Readers would recall that despite reservations expressed by several groups when the draft bill was being circulated, including the private sector and Opposition parties, the National Assembly approved the Procurement Act. At the time, the IFIs had also expressed strong reservations over the legislation as their experts had considered it to be "very weak." One of the main bones of contention, which was raised in the objections was that the discretionary power given to the Cabinet to by-pass the procurement procedures, which the Act itself should have regularised. It now seems from responses to queries that I have made as well as information obtained from the Internet, that the World Bank had written to the Government about the legislation pointing out its "flaws" and expressing reservations to its passage on more than one occasion. This was to no avail since as stated their views were not accommodated in the Act passed by the National Assembly.

In retrospect it appears that much of the publicised difficulties between the administration and the World Bank during the middle of last year seemed to have centred on this issue. The Procurement Act, however, having been passed, the dilemma that arose was how to arrive at a way to resolve the issue, given the continued insistence by the IFIs that it be changed. Obviously, in light of Government not taking on board the original criticisms that were made by various groups and agencies, going back to the National Assembly in such a short time after passing the legislation was, to say the least, embarrassing. An agreement was reached among the parties, which required that they agreed to amendments or side letter will become an attachment to the Procurement Act, with the stipulation that if it conflicted with the Act, the amendments would take precedence. Thereafter, the Procurement Commission will make the required legislative changes after it was established, seemingly as an initiative of the Commission!

Despite the deep interest of the Guyanese public in this issue, which affects their livelihoods directly, and despite also the involvement of the National Assembly, the ease with which the World Bank could get involved in such a manoeuvre is telling. Publicly, the IFIs take a strong stand against such non-transparent, manipulative behaviour by private interests in the field of corporate governance. Yet in the inner sanctum of their own decision-making, the rules of scampishness, abuse, roguery and scheming (SARS) prevail. In the literature this type of behaviour is now referred as the equivalent of the SARS epidemic in inter-governmental governance, triggered far too often by the same IFIs who proclaim the loudest against the evils of corrupt practices.

In a democratic environment the revelation of such follies of public management would help, not hinder the process of change, reform and improved governance. In a backward capitalist environment where the incipient criminalisation of the state has started such revelations are treated as regime-threatening.

Bluff and Reality:
Governance in the criminalised state

Bluff and reality

No country as small and poor as Guyana can have an estimated equivalent of 47 per cent of its official GDP located in its shadow economy and about US$320 million annually appropriated by transnationalised organised crime and make serious claims to democracy. In this situation democratic claims are really little more than bluff and pretence. By stressing that in the age of globalisation poor governance operates at the interface between the insidious growth of the shadow economy and the criminalisation of various arms of the state, I have sought to open another gateway to understanding the crisis in Guyana, the attendant poor economic and social performance, and the seeming poverty and incapacity of public policy. Through this approach, I have kept not only those who hold the reins of political power at centre stage, but made way for a better understanding also of the role played by the other major driving force behind public policy in Guyana - the international financial institutions (IFIs) and foreign governments.

Readers would recall that this series has stressed as one of the most dramatic consequences of globalisation, the progressively narrowing scope for the exercise of independent and autonomous policy making in developing countries. This applies particularly to the small poor ones like Guyana, highly dependent on international trade, aid, finance, technology and technical expertise, and which are also riven with internal conflicts: social, racial, and religious. This actuation is no less than the systemic outcome of the uneven and crisis-ridden nature of the processes through which market capitalism widens and deepens globally.

If such circumstances prevail, it is not reasonable to attribute policy failure and the corrupting of the state solely to the incumbent political administration, as many do. While clearly the political administration plays a critical role in determining what happens, it also necessarily operates within parameters it cannot change. Furthermore, I believe that by emphasising these parameters and the complicit roles therefore that foreign agencies and governments play in this process increases the opportunities for corrective interventions. It also empowers citizens with a deeper awareness of their predicament. As we shall see as this series develops, halting the rise of the criminalised state and making the transition to democratic state forms requires a congruence of domestic public pressure and international support.

Double standards
My insistence therefore, in addressing the double standards practised by the IFIs in Guyana and other developing countries is deliberate. If these bodies postulate that: ‘corruption is the single greatest obstacle to economic development’ they must be consistent and unswerving in their efforts to root out this corruption, at the very least in areas where their resources are being utilised. Failure to act publicly on this is tantamount to giving private behind-the-scenes encouragement to corrupt behaviour. It undermines transparency and the democratic process and makes talk of public accountability and ethical standards look like simple expediency. In such conditions, these bodies are acting no better than the corrupt regimes they deal with, behind a public faade, which gives the impression that all is well.

Harsh as this observation might seem, it is borne out from a number of reports and analyses, which dramatise the very poor quality of governance the IFIs have encountered in Guyana, and the public’s almost complete lack of awareness of this information. Thus last week I cited the Stabroek Business of May 2, 2003, which reported the Government’s opposition to making policy information available to the public, for fear that it would end up in the wrong hands! It went on to report that even the routine IMF Article IV Consultation Reports and Letters of Intent are not now published, although they were until 2000. As SN noted, presently only 14 per cent of all governments that the IMF deals with do not publish these reports.

From my perspective few public assertions have managed to betray the narrowness and incipient distrust a regime can have for its own population than comments like those referred to above. It is inconceivable that the IFIs could allow such statements to pass, knowing full well their capacity to reverse decisions in their client states with which they are in fundamental disagreement. Readers should bear in mind how directly opposite these positions are to the great cultural aspirations of our times: openness, transparency, accountability, and the ready availability of policy information to the public.