Author: ChrisRam

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Looking back

Introduction
Today’s Business Page looks back not over the past year but to some fifteen years ago when on January 8, 1994, Ram & McRae (then Christopher L. Ram & Company) jointly with Ernst & Young Caribbean hosted a seminar ‘Managing for economic recovery.’ Among the persons who made presentations were then Senior Finance Minister Asgar Ally, the regional and international partners of Ernst & Young and Robert McRae and myself from Ram & McRae. With tax reform again being discussed at the national level I thought it appropriate to republish extracts from my presentation at that seminar on the topic ‘Tax reform: a vehicle for economic recovery.’ Some time over the next month or so Business Page will review developments since then and offer suggestions on steps which may seem necessary at this stage.

Role of taxation
Taxation is a major tool of economic management. Properly used it can play a significant role in fixing prices, allocating resources and alleviating social problems by redistribution of income. In the distant days of cheap oil and cheap money, however, serious mis-allocations and distortions were allowed to develop because of poor fiscal and monetary management.

Reality confronted the world and tax reform throughout most of the decade of the ’80s and early ’90s has been a popular cry in many countries of the world transcending continents, economic and political systems and different levels of economic development. In the metropolitan countries most notably the USA and the United Kingdom, the political directorate used tax reform as a way to marshal support for supply side economics, an experiment which emphasised policy measures to affect aggregate supply or potential output.

Across the other side of the world, the Asian tigers had as the objective of their reform increasing the revenues of their nontraditional sectors, a more effective income redistribution, removal of tax-induced incentives for waste and inefficiency and reduction in the transaction cost of transferring resources from the private and public sectors.

In the case of most of the developing countries the thrust for reform has largely been dictated by international lending agencies often in the role of a doctor administering to a sick patient. Unfortunately many of the prescriptions have largely followed wholesale copying of the changes in the metropolitan countries.

Although it is unreasonable to expect government to finance development expenditures while controlling the deficit and reducing inflation, there is little sympathy for administrations which increase taxes. In any case it is certainly not possible to finance development outlays of the public sector by depending entirely on regressive taxes, particularly since there is concentration of income and wealth in the hands of a small proportion of the population. It is unfortunately true that this situation is usually exacerbated in the process of economic development.

Tax ratio
It is usual in considering tax reform to examine the level of taxation in the country and to compare this with other countries. Table 1 [not reproduced] shows that of a random selection of fourteen countries, Guyana ranks number three among the highest taxed countries, well ahead of places like Singapore, Barbados, Trinidad & Tobago, USA, UK and Korea. The ratio for Guyana is almost certain to be unreliable for at least three reasons not all of which move in the same direction:

  1. The development of a culture in which tax evasion became a normal part of everyday life; this was particularly acute among the self employed persons in respect of their compliance with the income tax laws and the business community both in relation to income taxes and custom duties.
  2. Guyana is rated among the hyper-generous countries in the world: A vast array of tax concessions have been granted to a host of interest groups who have therefore benefited to the tune of unquantifiable millions. If the taxes otherwise due were not forgiven then the Tax/GDP ratio would have been even higher.
  3. Estimates of the unreported, unofficial economy suggest that that sector may be as large as the reported economy.

The issue of tax reform
Tax reform in any country cannot be carried out successfully without a clear recognition of the problems facing the country, an understanding of the direction in which it wishes to go and the policies to be pursued in getting there. Taxation is merely an instrument of economic policy and development and the beneficial consequence of taxation requires a clear and cohesive policy.

The discussion of tax reform is concerned as much with the structure of taxes both direct and indirect as it is about the level of taxation. As we have said before, where the figures are unreliable the measurement of the level is in any case meaningless. Tax reform must not be seen only as a revenue matter but as part of the control of the national budget. This therefore raises the issue of expenditure control about which I will just say that the structure of central government expenditure is such that most of the expenditure is at least fixed and cannot be reduced.

Taxation will always be the main source of revenue to most developed countries where the increasing expectations of a long suffering people demand increased not less revenues. However, the introduction of any additional taxes including those resulting from changes in rates or allowances only serve to penalise further those groups, most notably the employed persons and law abiding importers and manufacturers, who comply with the law. A case clearly exists for reform both for improvements in the tax structure and additional revenues. Such reforms should ensure that additional revenues are raised with very little adverse effect.

Tax reform includes winners and losers. The losers are often likely to be those with the greatest resources to resist and defeat reforms. Accordingly popular support, consultation and communication are vital to the reform process.

In seeking change, it must be recognised that the existing tax system is the product of decades of social, political and economic legislation and behaviour. Whilst it may be ideal in a tax reform package to go back to the drawing board and reconstruct all the laws and practices this is impossible to achieve for several reasons:

  • the existing tax system significantly influences current business patterns, relative prices, property values and legitimate vested interest;
  • the will hardly exists among politicians whose planning horizon extends only to the next elections;
  • the technical and other resources are seldom ever available; and
  • the opposition from vested interests and even tax administrators.

There is no such concept as an ideal model tax system which is applicable to all countries at a particular time or for any one country all the time. Tax reform is more a process of adapting to changing social, political and economic demands and priorities rather than a swift movement towards a desired goal.

Experience elsewhere suggests that efficient reform is best achievable by a series of incremental methods rather than by any comprehensive one time reform.

Tax evasion
Tax evasion affects both the Customs and the Inland Revenue Department and although the instances at the Customs Department seem to draw more media attention, the situation among certain groups of income tax payer is perhaps not much better. Although Table 1 [not reproduced] suggests that Guyanese are an overtaxed nation a comparison of the taxes paid by the self employed persons and those paid by employed persons suggests that there must be massive tax evasion by the self employed group. It seems strange that this group which includes professionals, farmers, restaurant and night club operators, traders and unincorporated businesses pays income tax equivalent to 0.44% of the total tax revenue of the country.

Laws exist for dealing with tax evasion but the resources available to the revenue authority are clearly inadequate to deal with the apparent scale of this practice. It is not a matter of laws or penalties for these are already extremely severe. The administrative capability to deal with this crisis must be enhanced by better staffing, training and salaries.

I believe that the bringing together of the two revenue departments under a single umbrella would lead to much more significant revenue collection through co-ordination.

The economy’s structure of financial institutions and procedures will need to be reshaped to aid in tax enforcement. Faceless transactions must be prohibited; an independent and skilled accounting profession must be fostered; specialised law tribunals must be set up to handle tax cases and corruption by public officers must be dealt with firmly.

The system has so far not adapted well to the abolition of the tax exit certificate, the untraceable movement of foreign exchange through the cambio system, and the increasing incidence of short term contractors, consultants and temporary workers.

While some of these recommendations will be unpalatable to many, the danger to society as a whole cannot be dismissed. Concentration of wealth among a small percentage of the society may on the surface appear to be attractive to those benefiting. At some point however, the inequity will result in social backlash from which no one can escape unscathed.

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Mr Corbin has an opportunity to put country and party before personal considerations

As the leader of the largest opposition party in the National Assembly, Mr Robert Corbin holds a constitutional office of vital importance. One of the principal features of that office and position is not only primary responsibility for holding the government accountable, but when performed competently, for contributing to the nature, pace and quality of the legislative and social agenda of the country as well as reining in an over-enthusiastic or errant government. Accordingly, what Mr Corbin does or fails to do as Leader of the Opposition and of the main opposition party is not purely a domestic matter for that party and its supporters but is of national importance.

Since Mr Corbin assumed the leadership of the PNCR following the death of Mr Desmond Hoyte in 2002, the party has effectively lost its Reform component, key members of its leadership, electoral support, influence, focus and direction. The emasculation has been so substantial and dramatic that the party has lost credibility and the respect of numerous Guyanese at home and abroad. While the party still calls itself the PNC-Reform, the ‘R’ except for Dr George Norton is gone, several of its leading members including Eric Phillips, Stanley Ming, Jerome Khan, Peter Ramsaroop, Dr Mark Kirton and Ms Supriya Singh having decamped.

Prominent members to have departed from the core party under Mr Corbin’s watch are such energetic, resourceful and young leaders as Sherwood Lowe, Artie Ricknauth, Joseph Hamilton and Ricky Khan. Others to have left include Dr Faith Harding, Ivor Allen, Dr Dalgleish Joseph, John Simon de Freitas and Hamley Case, former Chairman of the Finance Committee. Then of course there have been Desmond Moses and Raphael Trotman who went off to form the AFC, taking with them thousands of traditional PNC votes. Now, the party in the full glare of publicity has unceremoniously and acrimoniously parted company with two of its few remaining able and long-serving members in and out of Parliament, Vincent Alexander and James McAllister.

Under Mr Corbin, the party has effectively gutted itself of talent, political capital and institutional memory which many people believe have weakened it beyond repair in the near future. The best the party can hope for is that many of those who have left can be persuaded to return to rebuild the party, but that seems improbable with Mr Corbin as leader.

Under Mr Corbin’s leadership, the party at the 2006 elections experienced its worst ever electoral performance gaining just 34% of the valid votes cast, down from 42% in 2001. Not without significance is that the theme for those elections was Mr Corbin and his “Promise to make Guyana safe again.”

Mr Corbin’s record as Leader of the Opposition on political, economic and social developments and issues has been remarkably unimpressive. He has been ineffective in the face of persistent breaches of key provisions of the constitution on public finances, presidential powers, rights commissions and the Office of the Ombudsman. Many believe that President Jagdeo finds Mr Corbin extremely malleable, somewhat at his beck and call, to engage in inconclusive discussions on matters which for the most part are only tangential to the pressing issues facing our society and his party’s stated priorities. In sum, there is discomfort, dismay and hopelessness both among the party’s supporters and the wider society about the net effect of Mr Corbin’s leadership.

Mr Corbin is a seasoned politician who has served his party with energy, loyalty and pride for decades. As someone who undoubtedly cares about the future of the party and the direction in which this country is headed, Mr Corbin ought to recognise that the party urgently needs new, capable leadership to save itself from further and terminal damage. Leadership that will generate ideas and exude energy and vitality, none of which he seems capable of offering.

As difficult as it may appear to Mr Corbin, the real test of his leadership would be an admission that he no longer offers to his the party and the combined opposition, the quality of leadership which the circumstances and the state of our democracy require. It is a glorious opportunity for him to demonstrate that he puts country and party before personal considerations.

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Who’s left now? – conclusion

The death of socialism
Business Page last week suggested that amidst the cataclysmic dislocation to have rocked the capitalist world first manifested in the housing market in the United States, the response of the governments in the developed market economies is leading to a fundamental rethink of the role of ideology, and in the context of Guyana, raised the question playing on the word ‘left.’ Spreading like wildfire across industries and continents, the dislocation has made it obvious that the crisis goes far beyond the US or its housing market. It has raised troubling questions about the strengths and weaknesses of capitalism and the possibility of the revival of the socialist model of economic development which appeared to have been abandoned after the fall of the Soviet Union in December 1991.

So fundamental and vast is the problem facing the market economies that not even one trillion dollars has been able to calm the waters with the latest potential casualty being the car industry in the US, with the loss of over 2.5 million jobs directly and indirectly if the Big Three – Ford, Chrysler and General Motors – were to collapse. No longer is there any question of whether the state should get directly involved in the economy but only the extent of that involvement. For close to 20 years the world had this illusion that capitalism had solved the cycle of boom and bust, that regulation was the curse and deregulation and the market were a panacea for all the ills facing economies, that wealth in the form of derivatives could be created out of nothing and that socialism was dead.

Ideology
For some, perhaps simplistically, this all boils down to ideology, itself a misunderstood word that means nothing more that a set of doctrines or beliefs that form the basis of a political, economic or other system. Contrary to popular belief the word is not synonymous with socialism but is rather any underlying set of values and ideas and can embrace market capitalism, co-operativism or even religious fundamentalism. In last week’s column I indicated that at one stage the whole of Guyana, barring a small element, had been converted to socialist ideology by Jagan and Burnham and their respective political parties.

To get an understanding of whether those parties still subscribe to that belief I wrote their respective General Secretaries for answers and clarification about their commitment to socialism, and specifically to the PPP, whether the party gives any direction to the government on the kind of political and economic agenda it should pursue. My specific question to the PNC was whether it promotes and supports a socialist agenda. For whatever reason, neither responded to my letter.

It turned out that the PNC had long ago answered that question. In a letter published in the Stabroek News on January 12, 2002, General Secretary Oscar Clarke wrote that he could “think of no political party which can claim to have reversed itself so profoundly as the PNCR. It has changed its ideology and its economics.” That was as clear as one could be on distancing itself from the socialist agenda to which Burnham had committed that party.

Unclear
The situation with the PPP is far less clear. The party’s constitution defines it as Marxist but the party as government was all too willing to pursue the IMF-inspired Economic Recovery Programme inherited from its predecessor. The late President Jagan may have been uncomfortable having to reverse himself as much as he did in embracing the West to the extent he did, but for his supporters to selectively deal with his writings and his actions to show consistency is disingenuous, if not dishonest. I will respond separately to PPP member Rajendra Rampersaud’s letter in Thursday’s Stabroek News but for now he should refer to page 22 of Poverty Cause and Cure in Developing Countries by the late Dr Jagan. Calling for a “new economic planning strategy [which is] based on an anti-imperialist, pro-democratic and pro-socialist programme,” the late President identified the following ‘cures’:

1. nationalisation of the commanding heights of the economy – foreign and comprador capitalist-owned and controlled mines, plantations, factories, banks, insurance and foreign trade;

2. an almost total centralised planning and control;

3. expansion of the public and co-operative sectors;

4. rent, price and foreign-exchange controls.

These were obviously the very antitheses of the ERP which Dr Jagan’s government pursued on taking office in 1992 and no amount of manipulation of the records could explain this as anything but an about-face which has been taken to new lengths by Jagan’s successors. In this regard the PNC is less ambivalent. It would be more sincere if those who now want to protect or embellish Jagan’s reputation would simply explain that confronted with the prevailing international and domestic reality, he and his party had no choice.

Reversal
The completeness of the reversal by the politicians is seen not only in economic polices but in the legislative agenda; the subjugation of the interest of the worker to that of the employer; a tax structure that imposes low or no taxes on passive income while taxing earned income at punitive rates; the shift from direct to indirect taxes; concessions to business at the expense of the worker; and yes, the concentration of wealth to the business and political class.

Billions are spent annually on tax concessions to employers in exchange for their undertaking to provide employment, as though they do so for some philanthropic or altruistic reasons. The number of gas guzzling 4×4’s that are on the road, the majority with concessions, on a per capita basis is one of the highest in the world. But this practice is not only for the businesspersons. It seems that one of the first acts of a parliamentarian after taking the oath of office is to apply for duty-free concessions valued at millions of dollars to purchase a vehicle. At the exclusive community of the political elite in Pradoville the concentration of duty-free vehicles must easily be the highest in the country, with a one-car family being a rarity. These apparently trivial statistics are a measure by which it can be seen how far our society has been transformed. They are never issues that are ventilated.

Intellectual failure
It was suggested to me that one of the failures of socialism was its inability to respond at an intellectual level to the case made by Reagan and Thatcher for the market, and another was the fear of survival of socialist countries following the collapse of the Soviet Union. There is some merit in those suggestions but why have the economists and leaders of political parties not argued for an economic system, without label if necessary, that does not leave the market in charge or one that does not see the role of the government as being a mere facilitator?

Other than Cuba there are only two countries that have embraced state participation in the economy and those are right here in our region – Venezuela and Bolivia. Meanwhile we in Guyana proudly boast of how successful we have been in nationalising state entities which at the end of the day make us as a country poorer. The problem will come when we have exhausted debt write-off, when there is nothing else to privatize and when there is no further windfall revenue from VAT. For all his faults, when Burnham departed the scene, Guyana was owned and controlled by Guyanese. Now we have no control or influence over resources which have passed into foreign hands often with a bunch of goodies to go with them. To reverse that will not be easy, although we saw, as victims, some of that when CDC pulled out of GPL and Reynolds out of bauxite, leaving us to carry the can and the cost. Paradoxically, that is how it is happening in the developed world as well, as more and more businesses take public money in exchange for ceding some control to the government.

Agnosticism
It seems that Guyana’s policy response to the global economic crisis is to wait, see and hope it does not affect us. That is a naïve approach as we already see prices for our main commodities falling and we may soon see a number of Guyanese from the Caribbean returning as the construction job market dries up. In fact this seems an ideal time for a serious re-think of first the kind of society we would like to have, and second the formulation of the economic model that will take us there. That model will inform the investment policy, the regional and proportional development of the economy, the regulatory systems, taxation and the redistribution of wealth, planning and development and the provision of social services. There is no agnosticism in terms of ideology. A political party that seeks the support of the voters and the opportunity to govern has a duty, and ought to have the courage, to tell the public where they stand on fundamental issues.

The shenanigans of Wall Street, fascination with Fortune’s list of the richest this and richest that, greed and power at any cost have corrupted values and ideas. No longer do governments and parties think they need to believe in anything, once they can build a road here and create a few jobs there.

Conclusion
When a more objective judgment is made, the gains from IMF and neo-liberal policies are far from the impressive successes they seem to be. The benefits of free market liberalisation depend on who you are, your party affiliation and how much money or assets you had to begin with. There is no universal solution to begin with so rather than try to answer the question ‘Who is left now?’ I would prefer to see our political and intellectual leaders take the opportunity of the global meltdown to redefine their vision of our country and formulate a plan for taking us there.

Faced with real choices on issues and ideas I believe that our voters would be better disposed to renounce racial cleavages and start concentrating on ideas and policies. At the moment, the choice seems to be between persons of similar ideological persuasion distinguished only by their race.

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Who’s left now?

Introduction
The crisis facing the world economy is leading to a fundamental rethink of the role of ideology and the place of the ‘market’ in economic development. Some twenty years ago there was triumphalism in the West following the fall of the Berlin Wall and the demise of the Soviet Union. With the announcement and celebration of communism’s death mainly by those in the West, the practitioners, politicians and academics who had at one time extolled the virtues of socialism and the egalitarian society and equal opportunities which it would bring to all individuals all went into retreat.

Now it seems that capitalism as practised by those who were the celebrants at the death of communism are experiencing their own travails which offer a rare moment of satisfaction to the tiny minority which is still skeptical of the claims made by capitalism’s chief sponsors. Among this group is Joseph Stiglitz, known for his Nobel Prize in Economics and former Senior Vice President and Chief Economist of the World Bank. In his book Globalization and Its Discontents (2002) in which he not only critiqued globalisation but also argued that developing economies are, in fact, not developing at all, Stiglitz was particularly harsh on the IMF for imposing on those economies and countries, in exchange for loans and other assistance, economic policies “that conform to textbook economics but which do not make sense for those countries.”

In praise of deficits
Suddenly in demand for speaking engagements, Stiglitz, writing in the UK Guardian a few days ago, could barely contain his enthusiasm while speaking for that minority who never ceased having some connection to the Keynesian tradition. Lord Keynes who coincidentally was born the same year that Marx died, was the British economist who published in 1936, during the depths of the Great Depression, the tome The General Theory of Employment, Interest and Money in which his theory was that when the economy is slowing and businesses are reluctant to invest, the government should take up the slack, even if this means higher deficits.

Stiglitz in the Guardian noted that the acceptance of Keynesian theory even by the right in the US offered to those who were not captivated by the power of the market and capitalism, “a moment of triumph, after having been left in the wilderness, almost shunned, for more than three decades.” He posited that what the world was now experiencing was “a triumph of reason and evidence over ideology and interests,” and that some would see this as the end of market fundamentalism, comparable to the fall of the Berlin Wall.

Where have all our socialists gone?
But what happened to our socialists, or rather all of us, when at one time we all seemed to be socialists and the UF of Peter d’Aguiar a mere anomalous nuisance? If we are to take our constitution seriously – and why should we not given that is “the supreme law of Guyana” – Guyana is a state in transition to socialism. The constitution of the ruling Peoples’ Progressive Party, which I could not find on the party’s website, is even more emphatic about the party’s ideology – it is a Marxist party. In his seminal autobiographical work, The West on Trial, the late President and founder of the party, Dr. Cheddi Jagan wore proudly his allegiance to socialism, while blaming the British-US axis of all forms of plots and misdeeds. In fact Dr. Jagan, in the Wynn-Parry Commission into the Black Friday (February 16, 1962) disturbances said he was a communist.

Burnham, who initially came to power on an anti-socialist platform which he shared with D’Aguiar, went on a nationalisation campaign that at one time saw the state controlling some 80% of the economy.

While Burnham surrounded himself with some of the most doctrinaire left-wingers in Guyana including Ranji Chandisingh, Vincent Teekah, Elvin McDavid and Henry Jeffrey, his own commitment and that of his party, the PNC, to the socialist ideology appeared to be based on political control and nothing else. He had hardly been buried when his successor Desmond Hoyte reversed most of the socialist policies and embarked on the wholesale disposal of the country’s assets and resources for which the country received little in return.

The grand retreat
When Jagan returned to power in 1992, entirely out of character he continued those policies lock, stock and barrel, maintaining with the IMF a relationship of obsequiousness while embracing an amorphous and undefined New International Economic Order that had first been raised in 1948 in Cuba. Jagan never explained to his constituents or the country his about-turn on socialism, the IMF and the West, leaving it to others to speculate whether it was due to political expediency or his own conversion.

Whatever it was, his government pursued the same free market economics and model prescribed by the IMF and accepted by Hoyte.

Even before the death of Dr Jagan, economic policy and management of the PPP government was controlled by now President Bharrat Jagdeo who had been a member of the government from its first day in office in 1992. Jagdeo’s policies, on VAT, privatisation, price controls, food production and wages, have been entirely pro-IMF and he never for one moment betrayed his own Russian training. In effect then the policies of successive governments from 1988 to the present have been a renunciation of socialism.

The WPA too had been wedded to the socialist ideal and openly supported the Bishop regime in Grenada and the Cuban revolution. A major influence on the economic philosophy of that party was no doubt its one-time leader, economist Clive Thomas, arguably the best economist this country has ever produced. The TUF remains on paper a capitalist party but its leader sees no contradiction in being often placed in the role of spokesperson for the PPP.

Joining the clubs
For the political parties that were in government, the retreat from their ideological roots was no doubt shaped by developments in a world in which not to have the IMF stamp of approval or to be excluded from the WTO was like being an outcast. Market fundamentals reigned supreme and quietly everyone ceased being a socialist. Indeed, it would be difficult to find any leading member of the PPP – and here I distinguish it from the government – who would publicly describe themselves as a socialist. The PNC under Robert Corbin has lost not only its ideology but direction too, the WPA is peripheral as a force in politics in Guyana while the AFC is, so far as it can be labelled, very pro-market.

Cost and benefits
This column is not setting out as a value judgment on the economic model or policies which we followed at the behest of the IMF.

Nor does it suggest that there were not pluses and benefits from that relationship, however imbalanced. Perhaps both the post-Burnham PNC and the PPP needed an external force to bring investments and financial discipline to the country.

Many of the concessions and debt write-offs the country enjoyed were made possible by our allegiance to the IMF.

If the rules of accounting applied to the government, those write-offs would have been brought into its accounts as revenue, and it is partly those concessions that have made possible the substantial increases in expenditure on social services.

What is often not recognised or admitted, however, is that some of the debt write-off we have received had nothing to do with the IMF or the government, but rather stemmed from the fact that we were among a group of poor countries identified for such concessions.

Those policies have also had their cost. The resources of the country are now under external control and ownership. These foreign companies receive generous tax and other concessions under agreements which in many cases have not been subject to parliamentary approval or made available to the public. And in this regard the Asian wood giant Barama is an instructive example.

That company has reported losses for every one of twenty years while having enjoyed some of the most generous tax and other concessions imaginable. It is not only that those concessions have been costly to the revenue of the country, but they have made our domestic producers uncompetitive. With the various bauxite deals with RUSAL and BOSAI not available to the public, where is the political or public pressure to ensure that the deals are equitable and in the national interest?

One of the criticisms that can be made of the IMF-led policies is that while the national statistics may appear impressive and some Guyanese have seen marked improvements in their standards of living and a few have even reaped immense benefits, a large number of Guyanese still prefer to take their chances elsewhere. The figures show that tens of thousands of Guyanese have chosen to migrate legally or otherwise to seek jobs in just about any country they can enter. In the process, remittances have become one of our largest foreign currency earners and a major factor in any economic analysis. Public sector wages, and indeed wages in segments of the private sector as well, are cruelly low, made worse by a tax system that favours the self-employed and the shareholder over the wage earner.

Time to rethink
The crisis facing the market-oriented economies is causing a major rethink of some of the most sacred tenets of free markets and financial liberalisation. Primed as we are on the daily feed on US television we are aware of the embarrassing manner in which leaders of the US private sector trek to Congress begging for help. Make no mistake, the position in Europe and Asia is no different. When the turmoil is over and the dust has settled, the financial system, the housing and mortgage industry and the auto industry which have been responsible for much of the growth in many of the countries will have ended up in state ownership. While we privatise, they nationalise. That is not only a reversal over what took place for the greater part of the last twenty years, but a total contradiction of the free market. During all of this, the IMF seems to have gone into self-imposed silence.

Even after Guyana ceased being an IMF supervised country some two years ago, the government continued to follow the policies which the IMF imposed on us for so long that we seemed not to know there was an alternative or option. We are fortunate that we are not as vulnerable as some of the other Caricom countries, which because of a higher level of financial integration and tourism in particular, are already feeling the effects of the global storm. But make no mistake – we are not immune. Trinidad and Antigua are cutting back on construction and that will affect us directly. How do we reabsorb those Guyanese workers who may be forced to return home? For us the effects may be less immediate and also less harsh. But affect us it will.

Next week, we will look to see if there is anyone ‘left’ to help shape our response to the new reality brought about by the turbulence.

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Response to a Crises

Introduction
Today’s column looks at some of the ironies and contradictions in the response to what started as a domestic crisis in the mortgage sector in the US and the prospects for the developing countries arising out of the Obama victory. The effect of the crisis has been wide, deep and pervasive and demanded action.

On November 15, 2008, the Group of Twenty (G20) held an initial meeting in Washington to try and arrive at a common position and to seek solutions to the daunting challenges facing the world as a result of the cataclysmic turmoil that has shaken the belief in the way the capitalist system works. The meeting had been called by US President George W Bush, once considered the most powerful man in the world but whose performance during the entire period has been embarrassingly unconvincing and whose public pronouncements almost invariably coincided with further deterioration of the stock market. Bush’s obvious discomfort and lack of understanding of the problem did not instil any confidence in the US or world markets and his advisers thankfully and sensibly had stopped his effete television appearances which had been a regular occurrence when the crisis unfolded in September.

By contrast, Gordon Brown, the embattled British Prime Minister heading for defeat at the next UK elections, has come out − at the international level at least − smelling like a rose for his decisive response to the situation. On October 8 his government unveiled its plan which saw the first steps in an unprecedented scale of government intervention. The British banks received an injection of funds and government guarantees that are tantamount to nationalization, but it was this action that may have averted at least temporarily, financial Armageddon worldwide. The Brown plan seemed to be the blueprint for other countries which quickly followed suit in recognition of the extreme gravity of the world economic crisis. At the Washington summit, it was evident that everyone realised that coordinated effort was needed and that these economic powerhouses, if they could still be called that, had to work together to reform the financial system which had become inextricably intertwined as a result of globalisation.

Revival of socialism
But despite the critical and unusual steps that have been taken in various countries to stabilise the situation and provide support to the global economy, much more is needed. The financial markets are in a crisis of confidence and unless some assurance is received that there are matching reforms in addition to the support measures, the wild swings in the stock markets of the world will continue. The G20 leaders in their statement issued after their meeting acknowledged that reform of the financial system is a priority and must be so far reaching as to insulate the world financial system from a recurrence of these calamitous proportions in future. This is no easy task since the coordinated response that these reforms require will necessitate subjugation of self-interest for the common international good. Many critics will decry this as the revival of socialism but that is what seems to be inevitable if the world as we know it is to survive and hopefully achieve some semblance of prosperity going forward.

The alternative of retaining capitalism in the mould of Thatcherite-Reaganite economics in which the market is supreme, is too frightening to consider. Even the right-wing voices in the Republican Party in the US have been muted, perhaps an admission that those who want to hold on to outdated philosophies and beliefs do not truly appreciate the magnitude of what has occurred. One recalls that only days before the implosion in the US market, defeated Republican candidate John McCain had said that the US economy was “fundamentally strong.” Cruelly for him, the speed of the unravelling was as dramatic as it was mind boggling.

The collapse of three of the top financial houses in the US that were the public face of capitalism, adjustments in the European Union that could cost hundreds of billions of euros, the easing of credit arrangements in China all demonstrate a realisation that it is no longer business as usual. Indeed there probably have been more pro-socialism articles published within the past three months than in the past three years. Seventy-five years after his landmark work, renowned economist John Maynard Keynes must be gratified that the policies he recommended to avoid a slump are now accepted wholesale for introduction at the international level.

Questioning the US bail-out plan
Not lost in all this is the irony of the headlining role US Treasury Secretary Henry Paulson and his 35-year-old assistant Neel Kashkari have been playing in crafting the US rescue plan.

Both men are alumni of Goldman Sachs, another one of those once highly regarded US financial institutions that benefited tremendously from the financial engineering that has dominated and perhaps bears responsibility for the crisis, and which itself is now under threat. Paulson is former chairman and Kashkari is his protégé and more irony here, has immigrant roots in one of the emerging world economic powers, India. The latter has significant responsibility for oversight of the much publicized US$700 billion bailout that was supposed to be the silver bullet solution but which has not had even close to the desired effect. With President-elect Obama having taken effective charge of the public debate on crisis resolution and the Bush administration coming to an end in about seven weeks’ time, it is hard to see how much these men can achieve.

Indeed even before its implementation, the US bailout is now being questioned as the typical American approach to a crisis: throw tons of money at it and it will go away. This emphasises the stark reality that traditional prescriptions will no longer be effective and that while the preservation of market principles may be a laudable objective, French President Nicolas “L’Americain” Sarkozy’s assertion that laissez-faire is dead, does not represent irrational pessimism at all. What is clearly evident is that the days of reckless abandon in financial and economic dealings must come to an end and that the requirement for asset values to be based on realistic underlying worth can no longer be panned as antediluvian esoterica.

Obama for change
Obama started his incredible campaign for the presidency of the US perhaps to the left of the liberal wing of the Democratic Party, but he is pragmatic and was quite willing to shift positions in response to changed circumstances. So far he has been concentrating on putting his team together rather than pre-empting and second-guessing the incumbent. He campaigned on a slogan of ‘Change’ but the striking feature of his economic team has been described by the Economist as “centrism,” comprising real economists, many of whom served the Bill Clinton presidency of 1992-2000, another irony of sorts. The team is studded with economics PhDs, such as Larry Summers, Tim Geithner and Peter Orszag, all of whom would be top of any class. Thankfully, Obama is an intellectual heavyweight in his own right and he will certainly be able to arbitrate any competing views these stars may offer.

What will have to wait for clarification is the role Obama and his team will play in helping the developing countries weather the international financial storm that will still be raging on Inauguration Day on January 20, 2009. For decades the countries of the developing world have been led, dragged, coaxed and cajoled by the economic mantra of the IMF and the World Bank. The irony is that following the adjustments and rescue packages proposed by the G20 countries, the economies of those countries will have more direct government intervention than all the developing countries combined.

We will have to wait too, to see whether the Obama team will seek to bring about any change to the free-market capitalism promoted by the IMF and World Bank, who for decades have been forcing countries, in exchange for aid of any kind and value, to liberalise trade barriers, deregulate financial and labour markets, privatize national industries, abolish subsidies, and reduce social and economic spending.

That would be more than a vindication for all the support and good wishes Obama receives from the people of the developing world.