Po­lit­i­cal co­op­er­a­tion is nec­es­sary for es­cap­ing the nat­u­ral re­source curse

Stabroek News Sunday - - NEWS -

We ex­plored the idea of the re­source curse in six pre­vi­ous col­umns be­fore analysing the cost as­pects of the oil and gas con­tract. We took a break from this topic in the pre­vi­ous three successive es­says. Last week’s es­say looked at how re­cur­ring costs could have an in­ter­est­ing ef­fect on the long-term aver­age cost oil when sev­eral units of cost are pushed into the fu­ture. We still have to tackle many big top­ics such as the cap­i­tal mar­kets in Guyana and the re­cent GuySuCo ‘bond’ is­sue, height­ened gov­ern­ment bor­row­ing against oil rev­enues (a stun­ning US$900 mil­lion for two-year dis­burse­ment), re­cent trends in com­pany prof­its and other fi­nan­cials, re­cent de­vel­op­ments in the for­eign ex­change mar­ket, the Con­sol­i­dated Fund (again) and nu­mer­ous oth­ers. How­ever, it’s prob­a­bly help­ful to com­plete the dis­cus­sion on the nat­u­ral re­source curse in­stead of leav­ing the se­ries open ended.

I ar­gued that in or­der to make a pre­dic­tion on whether Guyana could es­cape the curse, we have to con­sider the con­di­tions pre­vail­ing in the coun­try today and the will to over­come them. These are the ini­tial con­di­tions. Two con­di­tions were iden­ti­fied: the lim­ited ca­pac­ity to do re­search in Guyana and the present pro­duc­tion struc­ture. With some shrewd lead­er­ship, the for­mer con­straint should not be dif­fi­cult to over­come given a large Guyanese di­as­pora. How­ever, in the past twenty years ex­perts from the di­as­pora, with the ex­cep­tion of a very few, ap­pear po­lit­i­cally con­nected to one of the main par­ties. With the en­trenched two-party po­lit­i­cal sys­tem, this ap­proach will con­tinue to ex­clude peo­ple who can con­trib­ute but are un­will­ing to el­e­vate party in­ter­ests above na­tional ones.

On the other hand, it will be very dif­fi­cult to cir­cum­vent the present struc­ture of pro­duc­tion. I think Guyanese lead­ers re­gard­less of po­lit­i­cal per­sua­sion un­der­stand the ne­ces­sity to change the makeup of what the coun­try pro­duces and ex­ports, but it will not be easy. Trinidad and Tobago had its first drilling in 1857 and that was the sit­u­a­tion un­til in 1910 the Bri­tish es­tab­lished Trinidad Oil­fields Ltd. Pro­fes­sor Jay Man­dle ar­gued con­vinc­ingly that with over 100 years of ex­pe­ri­ence, Trinidad and Tobago (TT) did not fun­da­men­tally change the struc­ture of ex­ports, al­though there was ex­pan­sion of non-trad­able pro­duc­tion.

By 2014, the oil and gas sec­tor ac­counted for 42.1% of GDP, but ac­counted for 85% of ex­ports. This sug­gests that the chang­ing struc­ture of the TT econ­omy went mainly into sec­tors not gen­er­at­ing for­eign ex­change. These are non-trad­able sec­tors such as con­struc­tion, fi­nan­cial ser­vices and other ser­vices. Agri­cul­ture started its de­cline as early as 1968. TT ex­pe­ri­enced se­vere eco­nomic down­turns and booms through­out its his­tory with oil and gas. There was a ma­jor eco­nomic boom from 1973 to 1982, a se­vere down­turn from 1982 to 1992 and yet an­other sig­nif­i­cant ex­pan­sion from 1999 to 2008. The eco­nomic per­for­mance has been mixed in the decade fol­low­ing 2008. How­ever, one can­not deny that TT has in­fra­struc­ture com­pa­ra­ble to some ad­vanced economies. Nev­er­the­less, the over con­sump­tion of au­to­mo­biles, sub­sidised gas and lim­ited space con­spired to cre­ate traf­fic night­mares.

Over in Guyana, the projects nec­es­sary for es­cap­ing the curse will re­quire po­lit­i­cal co­op­er­a­tion. Some kind of ar­range­ment will be needed to al­low both the elites of the PNCR and PPPC to claim joint own­er­ship of the big ticket in­fra­struc­ture projects and any fu­ture new in­dus­try out­side the oil and gas sec­tor. It should be noted that hav­ing first-world in­fra­struc­ture will not nec­es­sar­ily change the struc­ture of ex­ports and pro­duc­tion, but this is a nec­es­sary start. In spite of the de­vel­oped phys­i­cal in­fra­struc­ture of TT, the coun­try still de­pends on oil and gas for most of its ex­port earn­ings.

Any po­lit­i­cal con­sen­sus out­side of a bind­ing con­sti­tu­tional ar­range­ment will not work, es­pe­cially the op­por­tunis­tic type of agree­ment like the Cum­mings­burg Ac­cord. The like­li­hood of reneg­ing is very high if co­op­er­a­tion is not en­shrined in a new con­sti­tu­tion. More­over, reneg­ing is al­most cer­tain given the na­ture of the core sup­port of the PPPC and PNCR. The present con­sti­tu­tion al­lows for con­sen­sus through com­mit­tees, but this is not enough as it does not al­low for joint elite own­er­ship of the big de­vel­op­ment projects.

Most of Guyana’s po­lit­i­cal trou­bles orig­i­nate from the fact that the main par­ties de­rive a sig­nif­i­cant per­cent­age of their sup­port from one of the two dom­i­nant eth­nic groups. In the past, I have la­belled this strate­gic pro-eth­nic vot­ing. Most Guyanese, but not all, vote to keep the other side out of power. This does not mean they are bad peo­ple. It im­plies that these folks are faced with lim­ited trust and in­for­ma­tion about how the other side will vote in se­cret bal­lot. There­fore, the safe strat­egy is for many to vote for their re­spec­tive lead­ers who they per­ceive will look af­ter their eco­nomic in­ter­ests. The group that wins has a sense of vic­tory and de­mands eco­nomic re­wards. The group that loses has tra­di­tion­ally ex­pressed a feel­ing of marginal­iza­tion and dis­crim­i­na­tion, real or per­ceived.

This sit­u­a­tion is ob­vi­ously un­sound since the los­ing group has a dif­fer­ent per­cep­tion of the fu­ture. In other words, in busi­ness and eco­nomic terms, they have a dif­fer­ent sub­jec­tive dis­count rate of the fu­ture. Any busi­ness must have an ex­pected rate of re­turn on in­vest­ment. If the busi­ness owner is pes­simistic about the fu­ture she will

Tper­ceive a high sub­jec­tive dis­count, which is likely to mo­ti­vate her to sit on her cap­i­tal or mi­grate. If the owner is op­ti­mistic and sees fewer loom­ing risks, she per­ceives a lower dis­count rate and is more likely to in­vest.

The prin­ci­ple is the same for in­ter-group po­lit­i­cal ri­valry. The win­ners dis­count the fu­ture at a lower rate com­pared with the losers. This is be­cause the win­ners per­ceive bet­ter re­turns since their kith and kin are the lead­ers. The losers take the op­po­site po­si­tion as they per­ceive their in­ter­ests are un­der threat. This dif­fer­ence in sub­jec­tive dis­count rate has se­ri­ous im­pli­ca­tions for longterm eco­nomic growth. Com­mon sense tells us that if we can get ev­ery­one to have a level of op­ti­mism some­where be­tween the high and low dis­count rates, the econ­omy will grow faster in the long-term. Hence, po­lit­i­cal con­sen­sus and co­op­er­a­tion are nec­es­sary to get ev­ery­one march­ing at the same rate, thus boost­ing eco­nomic growth in a sus­tain­able man­ner. Oil rev­enues will no doubt boost growth, but not nec­es­sar­ily in a sus­tain­able man­ner. he way to get a com­mon per­cep­tion or dis­count rate is not through words such as in­clu­sion and unity, but through con­sti­tu­tional over­haul which le­galises and in­sti­tu­tion­alises co­op­er­a­tion be­tween the two dom­i­nant eth­nic elites. A con­sti­tu­tion should be seen as a form of eco­nomic in­sti­tu­tion just like laws that pro­tect pri­vate prop­erty, patents and copy rights. A con­sti­tu­tional frame­work pro­mot­ing co­op­er­a­tion is per­haps more im­por­tant than leg­is­la­tion to make the cap­i­tal mar­kets work bet­ter, yet econ­o­mists from the IMF, World Bank and in the main­stream don’t em­pha­sise con­sti­tu­tions as cen­tral to eco­nomic growth.

How­ever, elite co­op­er­a­tion en­shrined in a new con­sti­tu­tion is not with­out its risks. Any po­lit­i­cal co­op­er­a­tion be­tween PNCR and PPPC will (not may) re­sult in an

au­thor­i­tar­ian gov­ern­ment, as these are in­stinc­tively au­thor­i­tar­ian par­ties. The re­cent fir­ing of colum­nists Dr David Hinds and Mr Lin­coln Lewis by the Granger gov­ern­ment un­der­scores the au­thor­i­tar­ian in­stincts of the PNCR and the de­riv­a­tive politi­cians in AFC.

The new siz­able mul­ti­eth­nic group of vot­ers in Guyana presents an op­por­tu­nity for pro­vid­ing cred­i­ble elec­toral chal­lenges to the in­cum­bents should con­sti­tu­tional over­haul present an au­thor­i­tar­ian power shar­ing sys­tem. This group also in­clude in­de­pen­dent Africans, In­di­ans and Amerindi­ans.

There­fore, elec­toral re­form has to be part of the in­sti­tu­tional con­struct. It is per­haps the only dis­ci­plin­ing mech­a­nism for any power shar­ing ar­range­ment be­tween the PPPC and PNCR. Oth­er­wise, au­thor­i­tar­i­an­ism will en­trench the re­source curse and harm post-1992 demo­cratic con­sol­i­da­tion. any Po­lit­i­cal sci­en­tists have ob­served the ten­dency for au­thor­i­tar­ian regimes to be rife with nepo­tism, cor­rup­tion, em­bez­zle­ment, bribery and pa­tron­age.

The in­de­pen­dent vot­ers of Guyana will have to play this cru­cial role as chal­lenger even if there is no con­sti­tu­tional over­haul to pro­mote co­op­er­a­tion. Oth­er­wise,

I am ex­tremely pes­simistic that Guyana can es­cape the re­source curse since the po­lit­i­cal will does not ap­pear to ex­ist in the PPPC and PNCR for shap­ing a new law of the land.

Com­ments: tkhem­raj@ncf.edu

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